Final answer:
The correct order for the accounting of defined benefit plans is to first determine the present discounted value of future profits (I), then the deficit or surplus (III), and finally the net defined benefit liability (asset) (II), with the sequence being I, III, and II.
Step-by-step explanation:
The correct order for accounting for defined benefit plans is to first determine the present discounted value of the future profits, which includes calculating the components of the defined benefit cost to be recognized in profit or loss (P/L) and other comprehensive income (OCI). Next, you need to ascertain the pension plan's deficit or surplus position. Lastly, based on these calculations, you can determine the net defined benefit liability (asset). Therefore, the correct sequence is I, III, and II, making the answer (d) I, II, and III.
Defined benefit plans are in contrast to defined contribution plans, such as 401(k)s and 403(b)s, where the employer contributes a fixed amount regularly to the employee's retirement account. These contributions are tax-deferred, and the account is portable, coming with an employee if they change employers. These investments ideally grow at a rate that hedges against inflation, which is a benefit over traditional pensioners with fixed payouts.