Plan assets are the assets of a funded defined benefit plan. A funded defined benefit plan is one in which the employer contributes an amount periodically to the fund and the amounts are managed by a pension fund manager and invested in different asset classes.
The value of plan assets increase due to additional contributions received from the employer and due to returns earned by the assets and decrease due to benefits paid out to employees. The return on plan assets include interest earned, dividends earned, realized and unrealized gains or losses less taxes payable by the plan less administrative costs of the plan. They are carried at fair value at the balance sheet date.
Reconciliation between opening plan assets and closing plan assets would look like follows:
|Opening plan assets||XXX|
|Add: contributions received from employer||XXX|
|Add: actual return on plan assets||XXX|
|Less: Benefits paid||(XXX)|
|Add/Less: actuarial gains and losses||XXX|
|Closing plan assets||XXX|
CE Ltd. has a funded defined benefit plan. Its plan assets had a fair value of $25 million as at 1 January 2011. They include $15 million equity investments and $10 investment in bonds. Equity investments are expected to pay a dividend of $1 million during the year. Bonds are expected to pay an interest of 6%. The fund received contributions of $5 million during the year and paid out $3 million to employees. The fair value of the investments as at 31 December 2011 is $30 million. Reconcile the opening balance of plan assets with closing balance.
Written by Obaidullah Jan, ACA, CFA <--- Hire me on Upwork