Question 1

AAS 25 is relevant for superannuation plans that are reporting entities.A reporting entity is one for which:

Accepted Answer

A reporting entity is defined by AASB 1058 as an entity whose financial information is used by external parties (users) to make and evaluate decisions about the allocation of scarce resources. Therefore, option B is the correct answer as it describes the definition of a reporting entity.

Question 2

According to AAS 25,superannuation plans must provide a balance sheet and an income statement in which of the following situations?

Accepted Answer

According to AAS 25, defined benefit plans can choose to provide balance sheets and income statements if they have had an actuarial review of the accrued benefits at the balance date. Defined contribution funds are required to provide these reports if they are a reporting entity. Therefore, D is the correct choice as it covers both scenarios.

Question 3

AAS 25 requires that all the assets of superannuation plans be measured at:

Accepted Answer

AAS 25 requires that all the assets of superannuation plans be measured at net market value.

Question 4

The revenue recognition and asset valuation methods specified in AAS 25 are likely to increase the volatility of reported earnings.This is because:

Accepted Answer

The short-term variation in market prices of assets intended to be held long-term being reported as revenues or expenses each year can lead to increased volatility in reported earnings.

Question 5

According to AAS 25,beneficiaries of a defined contribution plan will be interested in evaluating:

Accepted Answer

Beneficiaries of a defined contribution plan are interested in evaluating the plan's ability to provide an adequate level of benefits for members and beneficiaries. The performance of trust management in preserving the plan's assets and the plan's ability to meet its obligations to members and beneficiaries are more relevant for defined benefit plans. The plan's ability to meet its debts as they fall due is not a priority for beneficiaries.

Question 6

The discount rate that AAS 25 recommends for use is:

Accepted Answer

AAS 25 recommends using a current, market-determined, risk-adjusted discount rate appropriate to the plan. This is because the discount rate should reflect the risk associated with the benefits to be paid out in the future. A discount rate that is too low could result in underfunding of the plan, while a rate that is too high could result in overfunding. Using a risk-adjusted, market-based rate helps ensure that the plan is appropriately funded.

Question 7

The requirements of AAS 25 mean that some other Standards do not apply to superannuation plans.These Standards include:

Accepted Answer

AAS 10 'Revaluation of non-current assets' and AAS 4 'Depreciation' do not apply to superannuation plans due to the requirements of AAS 25.

Question 8

A defined benefit plan is one in which:

Accepted Answer

A defined benefit plan is one in which the amounts to be paid to members at normal retirement age are specified or determined, at least in part, by reference to members' years of membership and/or salary levels. This means that the plan specifies the benefits that the employees will receive when they retire, regardless of how much is contributed to the plan or how well the investments perform.

Question 9

Long-lived Superannuation Plan provides the following information regarding its assets and receipts for the year ended 30 June 2002:  During the period,land acquired before 30 June 2001 was sold.The land had a cost of $1 million,a market value at 30 June 2001 of $2 million,and was sold for $2.8 million.What is the revenue of the superannuation plan for the period in accordance with AAS 25?

Accepted Answer

According to AAS 25, gains or losses on the sale or disposal of a long-term asset should be recognized in the statement of financial performance. Therefore, the gain on the sale of land, which is ($2.8 million - $1 million) = $1.8 million, should be included in the revenue of the superannuation plan. The other receipts and asset values provided do not need to be included in the revenue calculation. Thus, the revenue of the superannuation plan for the period is $3,678,000 ($1.8 million gain on land sale + $1,878,000 receipts from other sources).

Question 10

In the case of a defined benefit plan,the statements the trustees must provide if a detailed actuarial review has not been conducted at balance date include:

Accepted Answer

Trustees must provide a statement of changes in net assets and a statement of net assets if a detailed actuarial review has not been conducted at the balance date for a defined benefit plan.

Question 11

A defined contribution plan is one in which:

Accepted Answer

In a defined contribution plan, the amounts to be paid to members at normal retirement age are determined by reference to the accumulated contributions made by and/or on behalf of members, together with investment earnings thereon. This means that the retirement benefit is directly tied to the amount of money put into the plan and how well that money has performed in investments.

Question 12

Happy Days Superannuation Plan provides the following information regarding its assets and receipts for the year ended 30 June 2002:  During the period land acquired before 30 June 2001 was sold.The land had a cost of $4 million,a market value at 30 June 2001 of $4.5 million,and was sold for $6 million.What is the revenue of the superannuation plan for the period in accordance with AAS 25?

Accepted Answer

According to AAS 25, gains from the sale of long-term investments are recognized as revenue. Therefore, the revenue for the year ended 30 June 2002 would be $6 million (the amount received from the sale of land) plus the investment income of $5,081,000, which gives us a total revenue of $11,081,000.

Question 13

The measurement of the accrued benefits of a defined benefit plan involves assumptions about factors including:

Accepted Answer

The measurement of the accrued benefits of a defined benefit plan involves assumptions about all of the given factors, including the expected value of benefits to be paid as a result of early withdrawal from the plan, future salary levels and membership turnover, mortality rates, and discount rates.

Question 14

What is the key distinction between a defined benefit superannuation plan and a defined contribution superannuation plan?

Accepted Answer

The key distinction between a defined benefit plan and a defined contribution plan is how the benefits are determined. In a defined benefit plan, the benefits are determined by reference to the provisions of the superannuation plan trust deed's payment formulas. In contrast, in a defined contribution plan, the benefits are determined as the difference between the assets and other liabilities of the fund.

Question 15

AAS 25's argument in support of its selected method of measuring assets for superannuation plans is that:

Accepted Answer

The answer of AAS 25's argument in support of its...

Question 16

How are the accrued benefits of a defined contribution plan measured?

Accepted Answer

The answer of How are the accrued benefits of a...

Question 17

Situations in which a superannuation plan may be considered not to be a reporting entity include:

Accepted Answer

The answer of Situations in which a superannuation plan may...

Question 18

In what way is the asset measurement requirement in AAS 25 'Financial reporting by superannuation plans' inconsistent with the treatment required in AASB 1023 'Financial reporting of general insurance activities'?

Accepted Answer

The answer of In what way is the asset measurement...

Question 19

A description of the regulatory framework relevant to superannuation plans in Australia is:

Accepted Answer

APRA and ASIC are the main regulatory bodies for superannuation plans in Australia, and the Superannuation Industry Supervision Act 1993 sets out the regulations. AAS 25 provides guidance for financial reporting, and while it is recommended, it is not legally mandatory.

Question 20

How are the accrued benefits of a defined benefit plan measured?

Accepted Answer

The accrued benefits of a defined benefit plan are measured using actuarial principles to determine the present value of expected future benefit payments. This involves estimating the future salaries of members, their expected retirement ages, and their life expectancies, among other factors. This calculation is typically conducted in a detailed actuarial review, and the resulting figure represents the liability of the plan.

Quiz 23: Accounting for Superannuation Plans