Defined contribution plans
In this lesson, you'll learn how to account for defined contribution pension plans under IFRS standards. You'll discover why these plans are straightforward to treat as employment expenses, how to calculate the pension cost based on employee salaries, and how to identify any accruals or prepayments when cash
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In this lesson
- 0:00 Defined contribution plans explained
- 0:06 Accounting treatment and accruals
- 0:29 Worked example: calculating pension expense
- 1:04 Finding the accrual balance
About this lesson
contributions don't match the amount owed. Defined contribution plans are charged to profit or loss as an employment expense, typically calculated as a percentage of gross salaries. The key principle is simple: recognise the contribution payable in exchange for services rendered. If the cash paid into the pension scheme differs from the amount actually due, you'll need to record an accrual (if underpaid) or a prepayment (if overpaid) in the statement of financial position. This concept is essential for Financial Reporting and Strategic Business Reporting papers, where you'll encounter pension accounting across various scenarios. The worked example walks you through a practical calculation: determining the pension expense, comparing it to actual cash payments, and calculating the accrual balance—a pattern you'll apply repeatedly in exam questions and real-world financial statements.
Duration: 2m
Transcript
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