FRS 102 Case Study 1


The employer previously disclosed pension liabilities annually in the balance sheet under FRS 17.

The employer’s liabilities on an FRS 17 basis as at 31 December 2015 are:
Assets        £80,000
Liabilities    £100,000
Deficit        £20,000

The employer’s investment strategy is:
Equities        60%
Bonds        40%

The expected return on the employer’s assets over the year to 31 December 2015 was 5.0% p.a.

The discount rate as at 31 December 2015 is 4.0% p.a.

What is changing?

Under FRS 17, the employer would have been permitted to recognise the higher expected return on the equities held over the year.

Under FRS 102, you are no longer permitted to take advance recognition of asset returns.  Your expected return on assets must be set equal to the discount rate.

The employer’s pension cost under each standard is therefore:

FRS 17 FRS 102
Expected return on assets 5% 4%
Pension cost £0.9m £1.1m