Dear IFRS team,

We provide for early retirement or termination charges. Would it be
right in making the provision for the whole liability
(which could be for 5-10 years) that we know about in the year which
we make that commitment, or should this cost just hit the P&L as and
when it occurs?

Many thanks for your help,


Hi Sheetal

Termination benefits are recognized only when the employer has
demonstrated its commitment to provide the benefits with a formal
detail plan for the dismissal of group of employees, when the employer
has contractually agreed to pay a termination benefit to its employees
or when there is a constructive obligation resulting from a previous
experience or required by laws.

Long-term obligations in accordance with IAS 19 “Employee benefits”
must be recognized as the present value of the obligation less, if
any, the fair value of any asset set aside to settle the liability.
The present value of the long-term obligation is computed with the
discount future payments using preferably a long-term corporate bond
having the same terms. The charge in the income statement shall be
recorded within the personnel expenses with an additional disclosure,
where applicable, under the Related Party Transactions (ref. IAS 24)
for long-term benefits pertaining to key management personnel.

Reference to IAS 19 on long-term obligations are the paragraphs 132 – 143.



Many thanks Antonello,

When do you recognise the whole expenditure? For example, if the total
amount of liability till 2013 was for £200k and this year was £50k,
would I charge only £50k this year or would I make a provision of the
whole £200k?

Kind regards,

Hi Sheetal,

Here are the following items you need to know:

Opening Present Value of Obligation xxx

Unwinding of interest xx

Payments from the plan xx

Actuarial gain/(loss) xx

Closing Present Value of Obligation xxx

Present Value of Obligation is computed based on many factors, an
example is as follows:

– salary used to compute future compensation

– basis at which liability is calculated

– expected retirement age

– estimated salary increment

– current age



Mr A –

Age employed 25

Current age 25

Current gross salary 8,000

Expected salary increment 5% pa

Expected retirement age 50

Discount rate 10%

Mortality rate 1%

Payout = Final gross salary x number of years worked.

Liability for Mr A is 8,000 x (1.05^25) x (50-25) x (100% – 1%) = 670K

PV of liability = (1.10)^(-25) x 670K = 62K


Mr A –

Age employed 25

Current age 26

Current gross salary 8,800

Expected salary increment 6% pa

Expected retirement age 50

Discount rate 12%

Mortality rate 2%

Payout = Final gross salary x number of years worked.

Liability for Mr A is 8,800 x (1.06^24) x (50-25) x (100%-2%) = 873K

PV of liability = (1.12)^(-24) x 873K = 58K

Here’s what the liability would look like in FY2008 (assuming not on
corridor approach):

Opening Present Value of Obligation 62 [FY2007 liability]

Unwinding of interest 6
[63K x 10%]

Payments from the plan –
[Didn’t pay anything this year]

Actuarial gain/(loss) (10)
[Balancing figure]

Closing Present Value of Obligation 58 [FY2008 liability]

This computation is for 1 person… extend to full population.

You can assume averages for certain demographic information for
classes of workers.

I hope this helps. I think you need to rework the figures.

Alan Wong,

Great example, just one questions

The Unwinding of interest (6) & Actual loss (10) would be charged to
the P&L, right

Or just the Actual loss of 10, I am confused with the term of
unwinding of interest.

The reason I ask, in a market like this where high returns are hard to
get, a 10% interest income if assumed , would be difficult to achieve.
Thus putting burden on the companies P&L. Have I got the logic or is
it wrong


Hi Krish,

Sorry, I used the wrong term for Interest Cost and forgot to put in
the Current Service Cost.

Let me rework the example in excel… I did it on the fly yesterday.
Noticed a whole bunch of errors in calc.

Attached is the workings for the first 2 years and the final 2 years
of the plan for Mr A.

Yeah, the unwinding and actuarial loss/(gain) is charged/(credited) to the P&L.

However, there is a provision in IAS 19 that allows 2 other methods,
the corridor method and the “via statement of gains and losses”

The corridor method allows the amortization of actuarial gains/losses
over the remaining service period of the employee.

The statement of gains and losses method brings the actuarial
gain/loss to a statement which is outside the P&L.

These 2 methods reduce the impact to the P&L.

Also, do not forget that although interest rates affects the next
year’s interest, it also reduces the total liability due to

Regards and apologies for the bad first example,


Thanks Alan

Your detailed explanation does clear a lot of doubts about IAS 19, &
would help me a lot in my assumptions.

I would probably write to you again about some other doubts, relating
to other standards.

Thanks again & take care


Please note that the mortality rate in the examples seems to refer to
the probability that Mr A dies between now and his pension date (50).

The example states:

Mortality rate between 25 en 50: 1%
Mortality rate one year later, i.e. between 26 en 50: 2%

This is strange as you would expect the mortality rate to decrease as
the period of time Mr A can has decreased from 25 years to 24 years.

Met vriendelijke groet / best regards,



Yes, the mortality rate does refer to such.

The example was to demonstrate the impact of changes in assumptions to
Actuarial Gains/(Losses).

I’m not saying that 1% or 2% or 0% used in the example is
representative of any demographics.

Mortality rates are affected by factors other than age itself (war,
famine, epidemic).

It may not seem as strange if you look at such.



As i read your palaver over breakfast I can not but add to you discussion:Mr A’s mortality rates in this example are annual rates of 1% and 2%
and not a prob of 1% to die between 25 and 50 and a prob of 2% to die
between 26 and 50.For the valuation when A is 25 it is presumed to be 1% annualy and at
the next valuation when A is 26 the mortality assumption is increased
to 2% per annum.I resume to audience your discourse with this humble interruption.Regards,Boris