FRS 102 – Case Study 3


The employer participates in a non-segregated multi-employer pension scheme and, in the past, has used the exemption under FRS 17 to account for the Scheme on a defined contribution basis, by recording the contributions paid in the P&L and making no adjustment to the balance sheet position to account for any deficit.

The employer’s assets and liabilities on a ‘bespoke’ accounting basis are estimated to be as follows:

Assets        £7,000,000
Liabilities    £10,000,000
Deficit        £3,000,000

The employer currently pays deficit contributions of £100,000 p.a. to the scheme.

What is changing?

Under FRS 102, the exemption is removed and employers must disclose any pension scheme liability that exists in their balance sheet.

There are two options:

  1. If it is possible to reasonably identify your share of the assets and liabilities in the scheme then you must produce a full FRS 102 disclosure;
  2. If it is not possible to identify your share of the assets and liabilities in the scheme then you must record the Net Present Value of your future deficit reduction contributions in your balance sheet.  An allowance must also be made in the profit and loss account for the interest accruing on the deficit over the year.

What will this look like in practice?

The employer’s current position, and future position, under both options is shown below.

Current Position £000 FRS 102 (Full Disclosure) £000 FRS 102 (Present value method) £000
P&L Charge 100 120 130
Balance Sheet Item Nil 3,000 4,000

In this instance, the employer’s deficit reduction contributions were based on a prudent funding basis and so resulted in a higher deficit than when the liabilities are valued on a best estimate accounting basis.

Had the employer went with the ‘standard’ assumptions and not opted for ‘bespoke’ assumptions, their liability would have been £3.5m (i.e. an increase in the balance sheet deficit of £0.5m).