Cascada Ltd. is a first-time adopter with a transition date of 1 January 20X4. It is trying to determine how to measure the net defined liability at the transition date. During 20X4 Cascada Ltd. settled 40% of its pension obligation. What treatment should first-time adopter Cascada Ltd. apply?
A full retrospective restatement (e.g., the 20X4 settlement should not be anticipated)
A prospective application
At the date of transition, the settlement should be recognized
As a first-time adopter, Cascada Ltd. should apply a prospective application when adopting the relevant accounting standard, which means that it would recognize the net defined benefit liability at the transition date based on the obligations outstanding at that time. The 40% settlement of its pension obligation that occurred in 20X4 would not be taken into account in the measurement of the net defined liability at the transition date, as the full retrospective restatement approach is not required for first-time adopters under IAS 19. Therefore, Cascada Ltd. should recognize the settlement that took place in 20X4 prospectively, without adjusting the transition date measurement for this event.
