INTERMEDIATE ACCOUNTING 2

GEORGIE ANN P. IPO BSA-B

EMPLOYEE BENEFITS PART 1 April 3, 2020

Assignment no. 1

Problem 1:   (pg. 238)

1. FALSE. According to PAS 19employee benefits are cash considerations given by
an entity in exchange for services rendered by employees. 
2. TRUE. employee benefits are accrued only after an employee has rendered service
3. TRUE. An entity provides its employees one paid sick leave and one paid vacation
leave for each month rendered by an employee. Sick leaves can be carried over to
subsequent years and are monetized when the employee retires or resigns. Vacation
leaves cannot be carried over the subsequent periods and are not monetized when not
taken. The entity shall accrue a year-end liability for compensated absences for
unused sick leaves but not for unused vacation leaves
4. TRUE Compensated absences include payments by employers for vacation,
holiday, illness or other personal activities.
5. TRUECurrent PFRS require a liability to be recognized for compensated absences
that have been earned through services rendered, that are vested or carried forward to
subsequent years, and that are estimable and probable.
6. FALSE.. PAS 19 employee benefits require sick pay to be accrued only if it vest
with the employee.
7. FALSE. The accounting for defined contribution plans is complex because it
requires actuarial valuations.
8. FALSE.. Under a defined contribution plan, the employer bears the risk that funds
are insufficient to pay the retirement benefits of retiring employees.
9. FALSE..Under a funded plan, the entity holds and manages a fund that will be
used solely for the payment for retirement benefits of employees. 
10. FALSE.. An entity’s monthly contributions to the SSS for the benefit of its
employees are accounted for as a defined benefit plan.

Problem 2 no. 9-10 (pg. 241-242) April 14, 2020

Seatwork no. 1

9. The entity provides its employees six paid vacation leaves and two paid sick leaves
per year. Unused vacation leaves cannot be carried over to subsequent years and are
not monetized if not taken. Unused sick leaves can be carried over to subsequent
years and are monetized when an employee retires or leaves the company before
retirement. 

During the year, the entity has 20 employees, each currently earning a rate of P500
per day. A total of 48 days of vacation leaves and 14 days of sick leaves were taken
during the year. The entity expects a 3% increase in the pay rate of the employees in
the following year:
Requirement: Compute for the accrued liability for compensated absences at
year-end. 

Solution :

Sick leave- accum.&vesting 2

Number of employees 20
Total entitlement during the year 40

Total Entitlement during the year 40

Less: Sick leaves take. 14
No. of sick leaves carried forward 26
Multiply by: Future rate
(500*103%) 515
Accrued Liability- end C ₱13,390.00

10. An entity reports profit before bonus and taxes of P200,000 during the year. The
entity has an established policy of paying its top management a 2% bonus on annual
profit. The entity is subject to an income tax rate of 30%.

Requirements: compute for the amount of bonus under each of the following bonus
schemes.

A. Bonus is based on profit before deducting bonus and income tax.

      B= P x Br

          =200,000 x 20% = 4,000

B. Bonus is based on profit after deducting bonus but before deducting income
tax.
P
B= P-
1+ Br
 =200,000 – (200,000 / (1+2%)) = 3,922
C. Bonus is based on profit before deducting bonus but after deducting income
tax.
1−Tr
B= P x 1
−Tr
Br

=200,000 x (1-30%)/((1/2%)-30%)

 =200,000 x (0.7/49.7) = 2,817

D. Bonus is based on profit after deducting both bonus and income tax.
1−Tr
B= P x 1
+1
Br−Tr

  =200,000 x (1-30%)/((1/2%)-30%+1))

 =200,000 x (0.7/50.7) = 2,761

Problem (Other book) April 14, 2020

Seatwork no. 2

Kamille Company reported that the employees are each entitled to two weeks of paid
vacation leave and used 1,000 weeks.
The current salary of the employees is an average of P3,000 per week and the salary is
expected to increase by P300 per week or a future weekly salary of P3,300.

1. What is the vacation pay expense if the benefit is accumulating and vesting?
Vacation weeks: 1,000 500
Weekly Salary:   3,000                                    3,300
Vacation weeks (used)        3,000,000             (unused)       1,650,000

Solution: 
Vacation weeks used 3,000,000 
 Vacation weeks unused 1,650,000 
P4,650,000 C

2. What is the vacation pay expense if the benefit is non-accumulating and non-
investing?
 Solution: 
Vacation weeks 1,000
Multiply by: weekly salary 3,000
 P3,000,000 A

Problem 6: MCQ April 14, 2020

Seatwork no. 3

1. Gavin Co. grants all employees two weeks of paid vacation for each full year of
employment. Unused vacation time can be accumulated and carried forward to
succeeding years and will be paid at the salaries in effect when vacations are taken or
when employment is terminated. There was no employee turnover in 20X6.
Additional information relating to the year ended December 31, 20X6

Liability for accumulated vacations at 12/31/X5 P35,000

Pre-20X6 accrued vacations taken from 1/1/X6 to 9/30/X6
(the authorized period for vacations) P20,000
Vacations earned for work in 20X6
 (adjusted to current rates) P30,000

Gavin granted a 10% salary increase to all employees on October 1, 20X6, its annual
salary increase date. For the year ended December 31, 20X6, Gavin should report
vacation pay expense of.

Solution:
Liability for accumulated vacations at 12/21/20X5 35,000
Pre-2016 accrued vacation taken from 1/1/X6
To 9/30/X6 (the authorized period for vacations) (20,000)
Total 15,000
Multiply by: income salary 10%
Increase in cost earlier periods owing to usage
Increase in 2005 1,5000
add:  Vacations earned for work in 20X6 30,000
VACATION PAY EXPENSE IN 2019 P31,5000 C

2. The following information pertains to Rik Co.’s two employees:

Name Weekly No. of weeks worked in Vacation rights vest or accumulate

Salary 20X6

Ryan 800 52 YES

Todd 600 52 NO
Neither Ryan nor Todd took the usual two-week vacation in 20X6. In Rik’s December
31, 20X6, financial statements, what amount of vacation expense and liability should
be reported?

Solution:
Weekly salary 800
No. of week vacation x2
VACATION EXPENSE P1,600 B

4. On January 1, 20X6, Baker Co. decided to grant its employees 10 vacation days
and five sick days each year. Vacation days earned can be carried over to the next
year but not sick days. Each employee took an average of three sick days in 20X6.
During 20x6, each of Baker’s six employees earned P100 per day and earned 10
vacation days. These vacation days were taken during 20X7. What amount should
Baker report for compensated absence expense for the year ended December 31,
20X6?

Solution:
No. of employees 6
Multiply: Vacation days earned 10
Multiply: Salary Earned per day 100
COMPENSATED ABSENCE EXPENSE P 6,000 B

5. North Corp. has an employee benefit plan for compensated absences that gives
employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days
can be carried over indefinitely. Employees can elect to receive payment in lieu of
vacation days; however, no payment is given for sick days not taken. At December
31, 20X5, North’s unadjusted balance of liability for compensated absences was
P21,000. North estimated that there were 150 vacation days and 75 sick days
available at December 31, 20X5. North’s employees earn an average of P100 per day.
In its December 31, 20X5, balance sheet, what amount of liability for compensated
absences is North required to report?

a. 36,000 b. 22,500 c. 21,000 d. 15,000

Solution:
Estimated Vacation Day Available 150
Multiply: Salary Earned per day 100
COMPENSATED ABSENCE LIABILITY P 15,000 D

Problem 3 Exercise 1&2 (pg. 290) April 28, 2020

Seatwork No. 4
1. The actuarial valuation report of an entity shows the following information:
Present value of defined benefit obligation, Jan. 1 280,000
Current service cost 50,000
Discount rate 11%
 Benefits paid to retirees 120,000
Actuarial Loss 50,000

Requirement: Compute for the balance of the present value of defined benefit
obligation as of year-end.

PV OF DEFINED BENEFIT OBLIGATION

Benefits Paid to retirees 120,000 280,000 Jan.1

50,000 Current Service Cost
30,800 Interest Cost
Actuarial Gain 50,000
190,800

P190,800 would be the balance of the present value of defined benefit obligation as
of year-end.

2. The actuarial valuation report of an entity shows the following information:

Present value of defined benefit obligation, Jan. 1 130,000
Current service cost 25,000
Discount rate 12%
Benefits paid to retirees 110,000
Actuarial Loss 50,000

Requirement: Compute for the balance of the present value of defined benefit
obligation as of year-end.

PV OF DEFINED BENEFIT OBLIGATION

Benefits Paid to retirees 110,000 130,000 Jan.1

25,000 Current Service Cost
15,600 Interest Cost (130,000 x 12%)
50,000 Actuarial Loss
110,000 220,600
110,600

P110,600 would be the balance of the present value of defined benefit obligation as
of year-end.