Determining The Re-measurements Of The Net Defined Benefit Liability: The effects of re-measurements of the net defined benefit liabilities or assets are recognized in section of other comprehensive income. Changes in the net defined benefit liability or asset that result from re-measurements comprise the actuarial gains and losses, return on plan assets (other than amounts included in the net interest) and any changes in the effect of the asset’s ceiling minus amounts included in net interest.
Actuarial gains and losses occur when changes in actuarial assumptions or experience adjustments affect the present value of the defined benefit obligation. The measurement of the defined benefit obligation is sensitive to assumptions such as employee turnover and the rate of increase in salaries.
For example, an increase in the rate of salary increase used in measuring the defined benefit obligation would increase the expected future settlement and, hence, the present value of the defined benefit obligation. An increase in the rate of salary increase results in an actuarial loss because it increases the present value of the defined benefit obligation. Another example of a change in an actuarial assumption is a change in the discount rate used to determine the present value of the obligation. An increase in the discount rate results in an actuarial gain because it reduces the present value of the defined benefit obligation.
Experience adjustments refer to differences between the actual results and previous actuarial estimates used to measure the defined benefit obligation. An example is the difference between the estimated employee turnover for the year and the actual employee turnover during the year. Experience adjustments may also relate to early retirement, mortality rates and the rate of increase in salaries.
The return on plan assets is determined after deducting the costs of managing the plan assets and tax payable by the superannuation fund on its income derived from plan assets. Other administration costs are not deducted from the return on plan assets.
Classification of actuarial gains and losses as items of other comprehensive income shields reported profit from the volatility that would arise from the recognition of actuarial gains and losses.
