MABALACAT CITY COLLEGE ACCOUNTING REVIEW 1

INSTITUTE OF BUSINESS AND EDUCATION Employee Benefits

Problem 1:During the year, Shiela Company had the following balances and actuary information related to a defined
benefit plan:
Fair value of plan assets, Jan 1 P 5,750,000
Projected Benefit Obligation 6,500,000
Current service cost 600,000
Settlement discount rate 10%
Expected return on plan assets 8%
Actual return on plan assets 700,000
Contribution to the plan 900,000
Benefits paid to retirees 100,000
1. What is the employee benefit expense? [P 675,000]
2. What is the remeasurement gain on plan assets? [P 125,000]
3. What is the defined benefit cost? [P 550,000]
4. What is the prepaid/accrued benefit cost on Dec 31, 2019? [P 400,000 Accrued]

Problem 2: At the beginning of the current year, Pedro company reported fair value of plan assets at P 6,500,000 and
projected benefit obligation at P 7,500,000.

During the current year, the entity determined that the current service cost was P 1,200,000 and the discount rate is
10%. The actual return on plan assets was P 800,000 during the year.

The entity provided the following information during the year related to the defined benefit plan:
Contribution to the plan P 1,200,000
Lump sum settlements to retirees 1,500,000
PV of defined benefit obligation settled 1,700,000
Decrease in PBO due to change in actuarial assumptions 200,000

1. What is the employee benefit expense? [P 1,100,000]

2. What is the total remeasurement gain (loss)? [P 350,000 gain]
3. What is the fair value of plan assets on Dec 31? [P 7,000,000]
4. What is the projected benefit obligation on Dec 31? [P 7,550,000]

Problem 3:Ultimate Company provided the following information for the current year:
Jan 1 Dec 31
Fair Value of Plan assets P 2,600,000 3,000,000
Projected Benefit Obligation 2,000,000 2,100,000
Prepaid/Accrued benefit cost – surplus 600,000 900,000
Asset Ceiling 200,000 300,000 .
Effect of Asset Ceiling 400,000 600,000

Current Service Cost P 100,000

Contribution to the plan 350,000
Benefits Paid 150,000
Discount rate 10%

1. What is the actual return on plan assets for the current year? [P 200,000]
2. What is the actuarial gain due to decrease in PBO? [P 50,000]
3. What is the employee benefit expense for the current year? [P 80,000]
4. What is the net measurement loss for the current year? [P 170,000]

Problem 4: Angela Company provided the following information pertaining to the defined benefit pension plan for the
current year:
Prepaid pension cost, January 1 P 200,000
Current service cost 190,000
Interest expense on PBO 380,000
Interest income and actual return on FVPA 400,000
Past service cost during the year 500,000
Employer contribution 400,000
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1. What is the accrued pension cost at year-end?

COMPILED BY: WENSTON DEL ROSARIO ACCTGREV1_010

MABALACAT CITY COLLEGE ACCOUNTING REVIEW 1
INSTITUTE OF BUSINESS AND EDUCATION Employee Benefits

Problem 5: Kamille Company reported that the employees are each entitled to two weeks of paid vacation leave.

During the current year, the employees earned 1,500 weeks of vacation leave and used 1,000 weeks. The current salary
of the employees is an average of P 3,000 per week and the salary is expected to increase by P 300 per week or a future
weekly salary of P 3,300.

1. What is the vacation pay expense if the benefit is accumulating and vesting? [P 4,650,000]
2. What is the vacation pay expenses if the benefit is nonaccumulating and nonvesting? [P 3,000,000]

Problem 6: At the beginning of current year, an entity announced the decision to close the factory located in Mindanao
and terminate all 200 employees as a result of economic downturn. The entity shall pay P 20,000 per employee upon
termination.

However, to ensure that windup of the factory occurs smoothly, the entity needs to retain at least 20% of employees
until closure of factory in eight months.

As a result, the entity announced that employees who agree to stay until the closing of the factory shall receive P
60,000 payment at the end of eight months in addition to receiving their current wage through the period of closure
instead of the P 20,000. Based on this offer, the entity expected to retain 50 employees until the factory is closed.

1. How much is the termination benefits to be paid by the company? [P 4,000,000]

2. How much is the short-term benefits to be paid by the company? [P 2,000,000]

Problem 7: Silay Company has established a defined benefit pension plan for the employees. Annual payments under
the pension plan are equal to 3% of an employee’s highest lifetime salary multiplied by the number of years with the
entity. An employee’s salary in 2017 was P 500,000.

The employee is expected to retire in 10 years, and the salary increases are expected to average 4% per year during
that period. On Dec 31, 2017, the employee has worked for 15 years. The future value of 1 at 4% for 10 periods is 1.48.

The employee is expected to live for 15 years after retiring and will receive the first annual pension payment one year
after retirement. The discount rate is 8% and relevant ordinary annuity of 1 at 8% for 15 periods is 8.56, while PV of 1 at
8% for 10 periods is 0.463

1. What is the annual pension payment that should be used in computing PBO? [P 333,000]
2. What is the annual pension payment that should be used in computing ABO? [P 225,000]
3. What is the Projected benefit obligation on Dec 31, 2017? [P 1,391,772]

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COMPILED BY: WENSTON DEL ROSARIO ACCTGREV1_010