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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: accountancy issues: FRS17: retirement benefits - profit and loss account

Under FRS 17, there are various transactions recognised in the profit and loss account that relate to pensions accounting. Some may not be present every year - for instance, settlements and curtailments and past service costs only occur when there are changes made to the scheme. Others, such as the current service cost, interest expense and expected return on assets are likely to be recurring items.

The table below summarises these entries:

Periodic Expenses Where they are shown
Current service cost - see INTM523270  Operating profit
Interest expense - see INTM523280  Finance costs
Expected return on assets - see INTM523410  Finance costs
Actuarial gains and losses - see INTM523300  Statement of Total Recognised Gains and Losses
Non-periodic Expenses Where they are shown
Past service costs - see INTM523310  Operating profit
Settlements and curtailments - see INTM523320  Operating profit

INTM523410 onwards contain more information on these items.

For entities not applying FRS 17, the treatment differs slightly as summarised below:

(i) Unlike FRS 17, the other pension standards (see INTM523210) do not specify which profit and loss line item should include current service cost, interest cost or the expected return on net assets. The relevant accounting policy and employee benefits notes in the accounts should be consulted to determine the classification of these items.

(ii) Under IAS 19 entities have an accounting policy choice over the recognition of actuarial gains and losses. For accounting periods commencing before 1 January 2013, an entity could either:

  • recognise actuarial gains and losses in the income statement
  • recognise them in the statement of comprehensive income, or
  • adopt a ‘corridor approach’ which brings into account actuarial gains and losses to the extent they exceed a de minimis (the calculation of which is not covered here but is provide in the relevant standard).

Whichever approach was taken the accounting policy should disclose this choice and it should be applied consistency from one period to the next.

(iii) For entities applying revised IAS 19 (effective in accounting periods commencing on or after 1 January 2013), the ‘corridor approach’ was removed and entities are required to recognise actuarial gains and losses either in the income statement or the statement of other comprehensive income (OCI).

(iv) For entities reporting under FRS 102, the accounting is aligned to the revised IAS 19.