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Question 3The following statements are true about asset ceiling except for:Answer :It needs to be considered when the present value the defined benefit obligation exceeds the fair value of the plan asset.    When the assets ceiling is lower than the surplus of the plan asset over the defined benefit obligation, the asset ceiling will be recognised in the statement of financial position.   It is the present value of future economic benefits in the form of refunds from the plan.

Question

Question 3The following statements are true about asset ceiling except for:Answer :It needs to be considered when the present value the defined benefit obligation exceeds the fair value of the plan asset.    When the assets ceiling is lower than the surplus of the plan asset over the defined benefit obligation, the asset ceiling will be recognised in the statement of financial position.   It is the present value of future economic benefits in the form of refunds from the plan.

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Solution

The question seems to be asking for the statement that is NOT true about the asset ceiling. From the given options, the statements are:

  1. It needs to be considered when the present value of the defined benefit obligation exceeds the fair value of the plan asset.
  2. When the assets ceiling is lower than the surplus of the plan asset over the defined benefit obligation, the asset ceiling will be recognised in the statement of financial position.
  3. It is the present value of future economic benefits in the form of refunds from the plan.

To answer this question, we need to understand what an asset ceiling is. In the context of pension accounting, the asset ceiling is a limit on the measurement of a defined benefit asset. It is the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Now, let's analyze each statement:

  1. This statement is true. The asset ceiling needs to be considered when the present value of the defined benefit obligation (the company's pension liability) exceeds the fair value of the plan assets (the assets set aside to meet this liability).

  2. This statement is also true. If the asset ceiling is lower than the surplus of the plan asset over the defined benefit obligation, the asset ceiling will limit the pension asset recognized in the statement of financial position.

  3. This statement is not entirely accurate. While the asset ceiling is related to the present value of future economic benefits, it is not itself this present value. Instead, it is a limit on the recognition of a pension asset, based on these future economic benefits.

So, the statement that is NOT true about the asset ceiling is: "It is the present value of future economic benefits in the form of refunds from the plan."

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