Professional Documents
Culture Documents
The fair value of the plan asse1s is the source o f fund set
aside in meeting future benefit payments.
TECHNICAL KNOWLEDGE
The projected benefit obligation or the defined benefi t
obligation is the pxese.nt value of expected future J)ayments
To understand the relationship between fair value of plan required to settle the obligation arising from employee
assets and projected benefit obligation. service in the current and prior periods.
If the FVPA is more than the PBO the plan is overfunded and
therefore there is a prepaid benefit cost, a noncurrent asset. ·
If the FVPA is less than the PBO, the plan is underfunded, and
therefore, thE1re is an accrued benefit cost, a noncurrent liability.
604 605
.
I1lustrat 10n 1 -
u11 derfunding co mpr e h e nsive illu st rat ion
the onl y co111 pone nt of t h e be110fit
To s11nplify the exa mp1e, • cos t of P500 000. ;\ t t he be g inn ing of c urre nt yea r , t he me m or a ndum records
expense 1s ti 1 e curre nt se rvice '
in re lntion to a de fin e d be nefit pl a n s howed the following:
. de a co nt ribu t ion of P 450 ,000 t o th e de fined
The entity ma !'a ir va lu e of pla n aaseta 5,000,000
benefit pla n for the curre nt ye ar. Projected be nefit obhgat1on 7,000,000
. t . to record the e xpe nse n nd the cont ribution Prepa id/accrued benefit cost (2,000,000)
The Journa 1 e n 1y
is: D ur ing t h e curre n t yea r, th e fo llowing transaction s are
500,000 ga th e r e d :
Employee benefit expense
4f;i0,000
Cash
Prepaid/accrued benefit cost 50,000 Current service cost 1,200,000
Past service cost 300,000
Illustration 2 - Overfunding Actua l return on plan assets 800,000
Contribution to the plan 1,000,000
Again, the only component of the benefit expe n se is the current Benefits paid - 500,000
service cost of P500,000. Actuarial loss due to.i ncrease in PBO .._____ 900,0.0.Q
As the years go by, this :J,ccount will build up and it may Net.remeasurement loss 600,000)
have debit or cr edit balance at the end of current r ep orting
period. Employee b~nefi.t expense 1,700,000
Net remeasurement loss 600,000
If the account has a debit balance , it is classi fi e d as Total defined b~nefit cost 2,300,000
noncurrent asset presented as prepaid benefit cost. Contribution to the plan l 1,000,000)
O th erwise, if the account has credit balance it is classified Accru_ed_bene:fit cost during the )'ear 1,300,000
as noncurrent liability presented as accrued benefit cost.
606 607
Journal entry BOBO 08 8
0000 oo 0
0000 oo 0
1,700,000 0000 oOo
o g
----
Employee benefit expense 600,000 0000
0 CN r--,. ona,
Ct;) <D
Net remeasurement loss - 0 C I r-: ,...; e
1,000,000
Cash 1,300,00Q
Prepaid / accrued benefit cost
g, ooS
ooo
ooo
Prepaid/accrued benefit cost- J anuary 1
0
. (2,000,00 0) 0 ooo
Credit adjustment- accrued benefit cost during yea.r
0 ooo
0
.,.; "'0"'
....·
Prepaid/accruec! be nefit cost - Dece mber 31 (3,300,000)
--= 8 8
Reconciliation 0
8
g
0
0
0
5,000,000 0 o_
FVPA-January 1
Contribution to the plan 1,000,000 2 8
Interest income on FVPA 500,000
Rem easurement gain on plan assets 300,000 oooS
0000
00
00
Benefits paid ( 500,000) 0000 00
OciOo~ 00
0000 00
FVP A - De ce mber 31 6,300,000 ~ M r - ll':l 0 . M.
,-< ........
Simple approach
FVPA - January l
Contribution to the plan
5,000,000
1,000,000 001
oo
oo
o·o
oo
00
00
oo
oo
oo
Actual re turn on plan assets 800,000 a,~ t- <D
Benefits paid ( 500,000)
FVPA - Dece nber 31 6,300,000
-
l.lcnefits 1mid 500,000)
Actuarial loss due to increuse 111 PBO 900,000
!'BO - Dece mber 31
609
608
Settle ment of pl a n
Worksheet jour nal entries ;1 sell lc.1nCJ1 I is a tra nsaction that eliminates a.l/,.f1trther leqc:-l
(Jl • r:unstrnct i ue obligations for p a.rt or all of the ben e.fiis
ti1e current. se rvice cos t: v:m,iclc.d- imder a do/inecf.-benefiv pla nl.
1. To recor cl 1
1,200.000 ]"or e xampl e , a o ne-o ff tr a n Afor of sig nifi ca nt e mplo y.e r
Employee benefit expense . 1,200,000
Projected benefi to bhgotion uontri butio ns u nde r the pl a n to a n insurance e ntity through
t he p urch ase of a n in Auraacc p-ultcy is a settle 1nent.
2_ To recorcl past service cost: Gnt ,i;re:si may set:lle their poste mploy me nt be ne fit plans by
300,000 purch a s111g a nnuity contracts from 111s uran ce ent1t1es for less
Employee benefit expens~ .
300,000 t h.an th e----amou n t::: 111 t:he----retire men t..iuod..
Projected benefi t obhgatwn
A lum p s um paymen t:to plan participa nts in exchange for
3. To record the interest expense on PB ~ trhefr.- cights to i:ecei.ve sp ecifi ecl.-.postemploymen t--bene.fits
is"also a settlement.
Employee benefit expense 700,000
700,000 However PAS 19 cla rified that a lump s u m payme nt to plan
Projected benefit obligation participa'nts ,nade:Lunaer the terms of the existing d ef ined
benefit plan i@ a settlement.
4. To record the interest income onFvP~')
This is referred to as routine settlement/ and -considered an
Fair value of plan assets 500,000 a ctua rial assumption that s hou1a b e 'i ncludecL.in--t.he
Employee benefit expense 500,000 measureme nt of t h e defined benefit--obligation .
The most obvio us example of a ro utine se-tt1eme n t is the
5. To record contriliutionbo the plan: qption to take a.lum p sum payment instead of an annuity o r
a periodic payme nt.
Fair value of plan assets 1,000,000
Cash . 1,000·,ooo Gain or loss on settlement
6. To re cord benefits paid: PAS 19, paragraph 110, provides that an e n ti t y sha ll
recognize ·gain or loss on the settlement of a defined benefit
Projected benefit obligation 500,000 plan when the settlement occurs.
Fair value of plan assets 500,000
The ga.in or loss on settlement is the differe n ce be tween the
settlement price and t he present value of t h e defined benefi t
7. To record a ctuar1al l~ss on iPBG\ obligation on the date of settlement.
Remeasurement loss - O CI 900,000 The settlement price includes any plan assets transferred
Projected benefit obligation 1_ 900,000 an d a.ny payments ma.de directly by the entity in connection
with the settle ment. ,,,'-U!;,'-" ,~
- _c'._'",.,.,
8. To record (remeasurement gain, on plan asset s:'l ~ ny 1ga1 n ?r loss _on settl~ment is fully recognized and
. - __1 - - ~ in cluded 1n service cost 111 the · computation of employee
Fa ll' value of plan assets -< - - 300,000 be nefit expense.
Remeasurement gain_ 0 CI 300,oOO
611
610
Journal entry
Illustration Employee be nefit expense
. . . nt yea r , t h e m e morandum r ecords 825,000
At the beginmng of cu n e owed the following : Re meas urem e nt garn - OCJ 100,000
of a d efi ne d be nefit P1an s I1 • Cash 600,000
-
4, 000,000 Prepaid/a ccru ed be nefit cost 125,000
Fair value of plan assets 6,600,000
Projected benefit obligation Prepa id/accrued benefit cost - January I (1,600,000)
Prepaid/accrued benefit cost
(1,500,000)
- Cred it adjustment - accrued benefit cost during year
Prepaid/accrued ben efit cos t - December 31
( 125,000)
(1,626,000)
the following transaction s are
During the current yea r ,
gathered:
Reconciliation
r , Current service cost BOO,OOO FVPA-Ja nuary 1 4,000,000
Contribution to the plan 600,000
Actual return on plan assets 300,000
Settlement price of defined bem;fit obligation ( 450,000)
Confribution to the plan . . '<h •or rclrl ,,·.~•'' GOO,OOO Interest income on FVPA 200,000
Settlement price of defined benefit obligat10n F 1"1 ilt,b 450,000 Remeasurement gain on plan assts 100,000
Present value of defined benefit obligation settled · 500,000
Discount rate 5% FVPA- December 31 4,450,000
p B O-January 1 5,500,000
Computations Current service cost 800,000
Interest expense on PB 0 •275,000
Present value of defined benefit obligation settled 500,000 Present value of defined benefit obligation settled ( 500,000)
Settlement price 450,000
PB 0 - December 31 6,075,000
Settlement gain 50,000
FVP A - Decem her 31 4,450,000
Cuxrent service cost 800,000 PB O - December 31 6,075,000
Settlement gain ( 50,000) Prepaid/accrued benefit cost - credit (1,625,000)
Interest expense on PBO (5% x 5,500,000) 275,000
Interest income on FVPA (5% x 4,000,000) (200,000)
Employee benefit expense 825,000
612 61 3
FVPA more than PBO Comprehensive illustration
. la n assets is more th a n the Projecte
If the_ fall" ~alue of ~1e Ia n is ove rfunde cl a nd t heref01, d A dC? fined ben efit plan revealed the following information
1011 at the beginning of current year:
benefit obhga t :dt be~efit cost which PAS 19 calla~.
there 1s a prepai It
f a ir value of plan assets 4,500,000
surplus. Projected benefit obligation \ 4,000,000
provides that the surplus in, a defined
PAS 19 paragrap l1 64' T d Prepaid/accrued benefit cost - surplus 500,000
benefit .plan must not exc~ed the asse~ ce1 mg et ermined Asse t ce iling 300,000
by using the discount rate lll the measurement of the defined Effect·of asset ceiling 200,000
benefit obligation.
Th e following data are provided for the current year:
The asset ceiling is the present value of any economic benefits
available in the form of refund s from the pla,n or reductions Cui-rent service cost 900,000
Actual return on plan assets 1,000,000
in fi.tu.re contributions to the pla n. Contribution to the plan 700,000
Benefits paid 200,000
Illustration Actuarial gain due to decrease in PBO 300,000
Asset ceiling on December 31 800,000
At year-end, a defin ed benefit plan revealed the {allowing Discount rate 10%
data: PAS 19, paragraph 8, provides that a n ~ n the effect
of the asset ceiling, excludiqg interest ontlie elfect of the asset
Fair value of plan assets 6,000,000 ceiling is acremeasurem~ to be recognized through other
Projected benefit obligation 5,000,000 comp re he nsiveirrc-ome:-
Prepaid/accrued benefit cost- surplus 1,000,000 Paragraph 126 provides that the interest on the effect of the
asset ceiling is part of the total change in the effect of the
The asset ceiling or the present value of available future asset ceiling.
refunds and re duction in future contributions is Pl,200,000.
The amount is determined by multiplying the effect of the
asset ceiling at the beginning of the period by the discount
The surplus does not exceed the asset ceiling. rate.
Th erefore , a prepaid be nefit co s t or surplu s a s set of The difference between the total change in the effect of the
Pl ,000,000 shall be reported in the statement of fin ancial asset ceiling and the interest on the effect of the asset ceiling
position at year-end. is considered the remeasurement.
_Any increase in the e ffect of asset ceiling is a
remeasurement loss minus interest expense on the effect
of asset ceiling.
Any decrease in the effect of asset ceiling is a
remeasurement gain plus interest expense on the effect
of asset ceiling.
614 615
1 Q11< 1 '" • I _,,I I
i Ill l" q l ,,
-----
Asset ceiling - Decem her 31
asset ce ilin g (180,000)
Effect of asset ceiling 400,000
Ne t r emeasureme nt gain - OCI 670,000
Cw·rent service cost 900,000 Employee benefit expense 870,000
Interest expense on PBO (10% x 4,000,000) . 400,000 Net remeasurement gain - OCI (670,000)
Interest income on FVPA (10% x 4,500,000) (450,000)
Interest expense on effect_of asset ceiling (10% x 200,000) 20,000 Defin ed benefit cost 200,000
Contribution to the plan 700,000
Employee benefit eiqiense 870,000
Prepaid benefit cost during the year 500,000
Actual return on plan assets 1,000,000
Interest income on FVPA 460,000 Employee benefit expense 870,000
Prepaid/accrued benefit cost 500,000
Remeasurement gain on plan assets 550,000 Remeasurement gain - OCI 670,000
Cash 700,000
Actuarial gain - decrease in PBO , 300,000
KOIJ .,._.~
Effect ofasset ceiling - Decem her 31
Reconciliation '1tli) ,ol/ll 11 drr<-1"
400,000 ( 1 \ttilt,t
Effect ofasset ceiling-Jan nary 1 200,000
Prepaid/accrued benefit cost - January l asset ceiling 300,000
'rota! change in the effect of asset ceiling 200,000 Debit adjustment -prepaid benefit cost during year 500,000
Interest expense on effect of asset ceiling on January 1
(10% X 200,000) _( 20,000) Prepaid/accrued benefit cost - I December 31 800,000
.
Remeasurement loss on as.s et ceiiing 180,000
Note that the prepaid benefi t cost on December 31 is PR00,000
which is equal to the asset ceiling on December 31.
616 617
. •
Trans1t1ona 1 provision Acco unting questio n
73 pl'ovidL-S tlrn~ ,rn orH1ly 11 hnll
. d p \ S 19 pol'agrnP'1 1 . . ' t:t Th u QUl'A tion 111 the treatme nt of Lhc un a mortized pas t survice
ReV1se i. ' · ! ·•stros poct,1voJ' •
apply t.ln s s t.:rnJn1c 1. c of 1'400,000 und the un1·ccoll 1111_,e d actua ri a l loss of P600,000
Oil Jnr111 ury J. :lQ~Q.
.. qjtjon:.11 cflccl of th e npt)licution of
Thismeansth at ~lll)/ :
1 1
;:AS
.19 ,,h ull bu ucco u n tod for us
the amendntent un ct · b,.J-i 11 ,.; 0 of rc t11mcd co mings U nd e r th e tran Hiti.onul prov11uo n of re vi sed PAS 19, the
-c, · " ~, tof thcbeg111mng
11 namorti zop pm1t t1crv icc cos t Hnd th e: unrecog nized actuarial
c• '
OuJ US dlh, , 1 '
.· Y ,d not"ndjust·t -h e cnrryi ng li tnou 1u lost! s hull he e liminated a nd :1 'm unt r d fru· r.c.trospective ly
1
Howeve r, 3; ~n ti t ~::\ 11 entployee be ne fit costs thnt wore ut:1 fin lI!.,lju~ltn(•nt of ruw m~i.l <W rnmgsJ"
of a sset s 1
. t 1iec 11u
urn., . · f' th
101
included 111 . . ·t·181 can ymg :-i ntount, o e assets.
. The adju s tm e n t o n January 1, 2020 to e limin ate the
unamortized pas t se rvice cost a nd th e unrecogni zed act ua ri al
I n otiier. w oi·ds ' a"sets such as inven toryb a ndf'tproperty, plant
t . I . loss is:
·
an d eqmpmen t tltat include employee
b e ne
d I cos s m t 1e ir
fl
carrymg. amoun t do not /1a•~ ""- to c..rcs.1a 1e . • Retained earnings 900,000
Prepaid/accrued benefit cost 900,000
---::-
Illustration
If this adjustment is posted to the ge nera l ledger, the e ffect
On January 1, 2020, the memorandum records showed the wo uld be the followin g:
following:
Prepaid/accrued benefit cost (1,100,000)
Fair value of plan assets 4,000,000 Credit adjustment ( 900,000)
Unamortized past service cost rl ' 400,000
\' Adjusted credit balance · (2,000.000)
Unrecognized actuarial loss 500,000
Projected benefit obligation (6,000,000)
This means that the adjusted accrued benefit cost is
Prepaid/accrued benefit cost (1,100,000) P2,000,000 on January 1, 2020.
On January 1, 2020, the entity applied the revised PAS 19_in As a proof, the memorandum records would show the
relation to the recognition of past service cost and act uarial following on January 1, 2020 after transition:
gains and losses.
Fair value of plan assets 4,000,000
Effective January 1, 2020, all past service cost s _during the Projected benefit obligation (6,000,000)
year are fully recognized in profit or loss.
Prepaid/accrued benefit cost- credit balance (2,000,000)
All actuarial gains and losses d uring the year a re fully
Note that the unamortized past service cost and the
recognized in other comprehensive income .
unrecognized actuarial loss are now eliminated and no
longer reported.
618 619
defin ed benefi t plan
Disclosures - PAS 26
. f the dufrne d bene fi t pla n a nd riaka Th iH at::inda rd dea ls with "acco untin g a nd re porting by
a. Ch anrn te n st1cs o .
. tcd~
a aSQCUl
h the plan retire me nt benefi t pla ns".
, . , f0·.1 the fan· value of pla n tl SSO-LS and the \t is the s~and tud fo r the prep1uation of ge neral purpose
b. Rcconc1\tat1om; dcfinccLbe.ncfit ob li gati.on fjn oncia l stateme nts or fin a nci!I! reports of retirement plan s
presen ~ vuluc-of t;-h e,
which may be H defin ed contribu tio n plan or defined benefit
SJ ·ate showing of curre nt-=scrvicc--cos t, past service pl a n.
1l\la~m t:eres,t e"''pense
c. 'Co-st, ,., or income a nd re nrnosure ments
In r are cases, a re tire me nt be ne fit plan may contain
characte ris tics of both defined contribution plan and defined
d. Disaggrega tion of the fai r value o~ ? la n ass9-ts into classes
benefit plan .
th at distinguish the nature and nsks of asse ts
h. 'GVlaturity profile of the defined benefit obligation In p_reparing the "sta te men t of net asse ts availa ble for
benefits", the plan investments shall be carried at fair value.
620 621
. d benefit plan
Report of define tllustration - Amounts are assumed
. d benefit pla n s hall con toi n eitheri
The report of a defm e . Ge ne rous Compa ny - Defin~d Benefit Plan
t how s th e net osscts av a ilable fo. State ment of Net J\sscts Available for Benefits
1. A s tateme nt t 11a _s l 1irese nt va lue of promise d benefit l Decem her 3 I , 2020
b en efi ts . the actuan a d t d b a,
. '. I . " betwee n ves ted a n nonves e enefi.ts ASSETS
d1strngms u n., . . d f ·t '
and the resultin g excess 0 1 e JC! .
Cnsh 500,000
t assets a va ila ble for be nefits , .inchtdinD Receivables:
2. A statemen t of 11 e ·. 1 . • Amounts due from
eith er a note disclosing the actu a n a . present value of
• eel vested and nonvested be nefi t s or a reference stockbrokers on sale of
prom1s . . l sec urities 1,500,000
to th is information in a n accompa ny111g actu ana report.
Accrued interest receivable ,100,000
Dividends receivable 100,000 2,000 ,000
The actu arial prese nt value of promi se d be nefits shall be In vestments at fair value:
base d on the benefits promised unde r the te rms of the plan Treasury bills 2,500 ,000
using either current salary or projected salary levels, with Equity securi tes 1,000 ,000
disclos ure of the basis used. Debt securities 500,000 4, 000,000 6,500 ,000
622 623
f actuarial valuation QUESTIONS _
Frequency 0
The report of a retire~ent plan, define~ co~tribution and 6. What is the treatment of the change in the effect of the
defined benefit, shall disclose the following information: asset ceiling?
a. Statement of changes in net assets a~ailable for benefits. 7. Explain the transition to the revised PAS 19.
b. Summary of significant accounting policies. 8. What is the treatment of unamortized past service cost
c. Description of the plan and the effect of a ny changes in and unrecognized actuarial gain or loss upon adoption of
the plan during the period. the revised PAS 19? ·
624 625
1()1• ll "\) ,t V'i ,. '7 \, 1 '1 11" \. \'A J 1 • -•.
. . f t, h
f\ t th e b eg 111n1n g o current year, Shiela Co mpany h a d t e
Problem 18-1 (I.AA) fn llowi ng ba luncc i, in the me mora ndum records rela ted to a
. • Shukira Co m1hrny hnd th de fin e d be ne ftt pla n:
• · f currc n t :'l' 0111 • • o ( ltl> '
At the beginnin g O . the meni or:.uidum rcco rd t1 Wl th re 8 1lcct
following bala nces in . fnir vu luo of pion llH8C t H J.rv "'" I 5,750,000
to a defined benefit plun. Projected benefit obbgntion ,JJ ,J,~) (If'
6,500 ,009
~r,1 •' i rO,UV\)
G,000,0 00 Th e uctua ry prov ided t he fo ll owin g i n formation for t h e E
Fair value of plan as_scts 0,000,000 curre nt ye a r :
Projected benefitobhgation l' ,1 • , " ii, 1 ( \ ll\l\
Cu rrent serv ice cost
• h ad de te r mine d t hat cut·rent
600,000
During tHe year , 't 11e ace oun tant Settlement di scount rate 10%
service cost is Pl ,550,000. f~{pccted return on plan assets .:B"/4'
Actu al return on plan asse ts _,, 700,000
The discount rate is recognized at 10% a nd the exp.J~led Contribution to the plan ,, 900,000
13encfits paid to retirees 100,000
retu'fo1 on plan assets is ~% .
I '
The actual re t urn on plan asse ts for the year is P 650,00Q. Required:
The entity contributed Pl,200,000 to the plan at the end of
1. Determine the e mployee benefit expe nse for the current
the year. year .
Required: 2. D etermine the "remeas urement" at year-end .
. 1. Dete rmine the employee benefit expense for ·the current
3. Prepare journal entry t o record the employee benefit
year . expense ..
2. Determine the "remeasuremenf at year-end. 4. Determine the balance of the prepaid/accrued benefit cost
at year-end.
3. Prepare journal entry to record the employee benefit
expe nse. 5. Reconcile the •prepaid /accrued benefit cost with the
memorandum records.
4. Determine the balance of the prepaid/accrued benefit cost
at year-end. (ol' V\l . v.v J'1 rD'/\1\)
vrll, t ' 1 ..
J C, 1'V, l
1tf\} ,t
It 11
1
'
;
IJ
rA u
I 15" '' -;u
1· ·v
t/ '
6 26 . 627 -
---qf" 1\
----------
l'.J
-, (, rl)
~.,
-~-
I I
..
, .~• ,, , 1 1\r.:',
problem 18-4 (IAA)
Problem 18-3 (I.AA) 11~ .,.. "'
clll' Roc hel Compnny p rovid"d /\t the bugmnin1,; of currorit your , th e me mor a ndum records
. . g of curre n t Y ' fi d ia "
At the beg1n111n . ,c1ion with a de m e utl n!!flt Plan• of Kl a udin o Cu mpuny Hhowcd Lho fol.lowin g balances related
the follawing data Ill conn c
to o d e fin ed be ne fit plun pr io r to Lho ad option of r evised
6,ioo.ooo pA S J9:
Fa ir value ofpl nn osse~ 7,600,000
Projected benefit. obhgo tiot\ , , "' ,1 , , 1·
Fni r vnluu of pion EI S!lel.a 6,000,000
i led t,he fo llowing information for the Unurn orti7,cd poat oo rvicc coel ,) 300,000
The a ccountant. revet rrojc:ctocl benefit obligation
I, 'fl \ I (7,600,000)
curre nt year: II r
629
628
Problem 18-5 (JAA) , Problem 18-6 (IAA)
. . 0 f curre nt yea r, Pe dt·o Co mpany l'e ported
C h a rlton
· . Company · p rov1·d e d the followrng
· · ·
111format10n
At the begimun~ • fon in re lation to o de fined be nefit
th e followwg 1ruoi ma 1 conce rn_rng a defin ed be_n efit plan at the beginning of current
year prior to the udopt10n of revised PAS 19:
plan :
G,Goo,000
Fair value of plan assets (7.500 n,;;;, Debit Credit
Projected benefit obhgat.Ion
Fair value of plan assets 4,750,000
Prepaid/accrued benefit cost Una mortized past service coat 'ell • _1,250,00Q
Projected benefit obligation c, 0 0 , "
0
5,500,000
0
During the curre nt year, the e·n tity d e term_ined th at the Unrecognized actuarial gain 850,000 _ 1 ru, ·, u
• · cost was Pl , 200 ,000 and the discount r ate 1-8
current service to3 r0 Lf\,1,1 ci c ~
630 631
.f"I I Ot I.,
Problem 18-7 (IFRS) Problem 18-8 (l FRS) v
f curront your, 'frla lrn Company provfdod
. .
At the begmn ing O I t d
the ·rouowi ng do t/I ro ii ll
to
'I defi ned be nefit plo n:
'
/\ t t he bog-Inni ng of cur re nt year, Rac hellee n Co mp a ny
provided the following Informa t io n in re latio n to a defined
be n e fit pl an :
6, 000,000
Fair vRlue ofplnn a~sc~ 8,000,0oo
Projected bcnefitobhgut,on -:.;.;;:: f'oir va lue of plan ll&!KJU. 6,000,000
Prepaid/ace.rued benefit cost (g,Ooo,gggi Projected be nefi t obUgutlon £ ,000,000
P repaid/accrued be nefi t co11t - 11 urplu a 1,000,000
.·
D unng tlie ctii-rent yea r , t he
. . ent ity· ma deh a l u mp
r
sum AMHOt ce ili ng 700,000
payment to certai n pl_a n part1c1pants 111 exc an1:1e ,or their
Effect of asset ceilin g 300,000
· I t to receive specifie d poste mploymen t benefi ts.
ng 1.s " «1-1-1~1,1•\\l
The Jump sum payment was PS00,000 a nd thp-present value During the cur rent yea r, the following data a re gathere d:
of the defined benefit obligation was P}tPB~•,?OO. Curre nt service cost 700,000
Actua l re turn on plan assets 900,000
In addition, the followin g data a re ga t hered d uring the Contribution to the pla n 1,000,000
current year: Past service cos t 200,000
Decrease in projected benefit obUgation due
Current service cost 900,0()() change in actuarial assumptions ·500,000
Actual return on plan assets 800,000 Asset ceiling at year-end _ _ _, 1,200,000
Contribution to the plan 700,000 Discount rate 7,/7 10%
Discount rate 12%
Required:
Required:
1. Determine the fair value of plan assets a t year-end.
r, · ,· ,, l. Determine the employee benefit expense during the year.
2. Determine the projected benefit obligation at year-end.
2. Compute the remeasurement at year-end.
3. Determine the effect of asset ceiling at year-end.
3. Prepare journal entry to record the employ~e benefit
expense. 4. Compute the employee benefit expense for the current
1 year.
•· 4. Compute the prepaid/accrued benefit cost -a t year-end.
5. Compute t"4e remeasurements for the current year.
5. Re concile the general ledger account wit h t he
memorandum record. 6. Prepare journal en try to reco r d t he employee benefit
expense .
7. Reconcile the prepaid/acc1:ued benefit cost account.
632 633
,\ JCPA Adnp tccl) [' ro h le m 1 8- 1 1 (JAA)
Pro bl en1 18 -9 ('
, rovidl'd th0 fo ll o w i.n g i nfo r m nti o,, IJ1·u n11O 11 Co mpun y recei ved th e fo ll ow ing re port fr o m t he
Seda Co m pnn) P . hn for th e curre nt ye nr:
pertainin g to a pcnswn P " indcpe ndo nt actuary in rc lnti on to a de fin ed be ne fit pe ns io n
pio n ot you r-e nd:
Actuarial value of projected benefit obli~ntion
at begi nning of year 7,ioo.ooo l'c naion hcn c fi ta paid 136,000
Assumed discount rate 10% PBO ut ycu r-cnd 2, 160,000
Se rvice cost 1.soo,ooo f ntc rcat expe nse on PBO 120,000
Pe nsion be nefits p11id 1,r,oo.000 IJiRCOUnt rule 8%
No cha nge in actua ri a l estim a te occ urre d di.irin g t he current Wha t iB t he cu rre nt se rvi ce cos t fo r t he c u rre nt year?
yea r.
a, 675,000
What is the projected be nefit obligatio n at yea r -e nd? h. 8 10,000
c. 540,000
a. 6,420,000 d . 255,000
b. 7,500,000
C. 7,920,000 Problem 18-12 (AICPA Adapted)
d . 8 ,220,000
Wi nte r Compa ny provided the foll owing defin e d be ne fit plan
Probl em 18-10 (IAA) inform a tion for the curre nt year:
Gree nbelt Company provided the fo llowin g inform a tio n with Ja nu a ry l P rojected be nefi t obligation 3,500,000
respect to the defined benefit pla n fo r the curre nt year: Accumulated benefi t obliga tion 2,600,000
During the yea r Pe nsion benefits paid 260,000
Projected benefit obligation: Actua rial loss 200,000
Ja nuary 1 3,000,000 Past se rvi ce cost 600,000
December3 1 3,500,000 Dece mbe r31 Projected be nefit obligation 4,700,000
Contribution to the pla n 600,000 Accumulated benefit obliga tion 3,600,000
Benefits paid to retirees 500,000 Settle me nt rate 10%
Settlement discount rate 10%
The r e is no ch a nge in act uari a l ass umption s duri ng th e
What is the current service cost for the current yea r? current year.
a . 700,000 What is the current service cost for the current year?
b. 600,000
a. 400,000
C. 500,000
b . 800,000
d. 300,000 C. 200,QQQ
d . 750,000
634 635
AICPA Adapted) problem 18-15 (IAA)
Problem 18- 13 (
. d following information pertaining to
Caticlan Company provided the following information:
Gail Company prov1d;. . the current year:
de fined be nefit pla n or
January 1 December31
ts beginning of year a,soo,o00 fai r value of plan assets 3,500,000 3,900,000
Fair value of plan asse ' d fyea r 5, 250,000 2,800,000 2,900,000
Fair value of plan assets, en o Market related vabe of plan assets
1,100,000 Contribution to the plan 280,000
Employer contributions aso,ooo 250,000
Benefits paid Benefits paid to retirees
al return on pla n assets? What is the actual return on plan assets for the current
What was t h e ac tu
year?
a. 1,500,000
b. 2,600,000 a.400,000
C. 1,750,000 b.370,000
d. 650,000 c. 430;000
d. 100,000
Problem 18-14 (AICPA Adapted)
Problem 18-16 (IFRS)
Manaoag Company maintains a fund to cover ·a pension plan
with the following data for the current year: M a rion Company provided the follow i ng data for the current
year:
J anuary 1 Fair value of pla n assets
1 8,750,000
Market-related value of the pension fund January 1 Fair value of plan a ssets 9,000,000
(5-year weighted average) 7,150,000 During year Pension benefits paid 700,000
During year Pension benefits paid 600,000 Contribution to t he fund · 1,000,000
Contribution to the fund 700,000 Expected return on plan assets 1,200,000
Actual return on plan assets 950,000 Interest income on plan assets 900,000
December31 Fair value of plan assets 9,900,000
What is the fair value of plan assets on Decem ber 31?
What is the remeasurement gain or loss on plan assets
a. 8,200,000 for the current year?
b. 9,800,000
C. 7,250,000 a. 300,000 gain
d . 8,850,000 b. 300;000 loss
c. 600,000 gain
d. 600,000 loss
636 837
Problem 18-17 (AICPA Adapted)
Problem 18-19 (IAA)
Angela Comp a ny provid e d th e f_o llowing i_nfo rmntion
. • to a defined benefit pen sion pla n for the curre,1l At th e beg!nning of current yea r, Dakak Company reported
pertrumng
the following information in rela tion to a defined benefit
year: pl a n:
-Prepaid pension cost, January 1 20,000
Fair value of plan assets 7,000,000
Current service cost 190,000
Projected benefit obligation 7,500,000
Interest expense on PBO aso,ooo
Interest income on plan assets 400,00Q
Past service cost during the year 500,000 During the current year, t he entity determined that the
Employer contribution 400,0QQ current service cost was1'1 ,400,0Q_Q)and the discount rate is
10%.
What is the accrued pension cost at year-end?
The actual return on plan assets during the year was
a. 250,000 P840,000.
b. 290,000
C. 270,QQQ Other related information for the current year:
d. 4bO,OOO
Contribution to the plan 1,200,000
Benefits paid to retirees 1,500,000
Problem 18-18 (AICPA Adapted) DecreaseJ_n projeated be efit obligation due to
ch;mges in a aria:l assumptions --t 200,000
Kerr Company provided the following inform ation in Present value of med benefit obligation settled 500,000
relation to a defined benefit plan at year-end: S~ttlement price of defined benefit obligation 400,000
a. 5,700,000
b. 2,250,000
C. 1,400,QQQ
d. 850,000
639
638
uld be reported in the income stateme nt Problem 18-20 (IAA)
1 What a moun t Sllo fi
· fior ti1e curr eiit yea r as employee bene 1t expense?
At the beginning of current yea r, Maximus Company had a
a. 2, 150,000 projected benefit obliga tion of P l 0,000,000 a nd a pension
b. 2,050,000 fund with a fair value of P9,200,000.
Cl, 1,350,000
d- 1,450,000 The entity provided the following information related to the.
pension pla n during the current year:
2. Wh a t is th e net a moun t of "r e m e a s ure m e n ts" on
December 31? Current service cost 1,200,000
Actual return on the pension fun d 260,000
Benefits paid to retirees 1,100,000
a. 140,000 1,050,000
Contribution to the pension fund
b. 200,000
Discount rate 9%
Cl 340,000
Expected r eturn on pension fund
d. 100,000
1. What is the pension expense for the currerit year?
3. What is the fair value of plan assets on December 31?
al. 1,272,000
1a. 7,140,000 15 . . 2,100,000
b. 7, 540,000 C. 1,850,QQQ
C. 8,200,000 d. 1,050,000
d. 7,000,000
2. Wha t is the remeasurement gain or loss for the current
4. What is the projected benefit obligation on December 31? year? ·
5. What is the balance of the prepaid/accrued benefit cost 3. What is the pension asset or liability at year-end?
on December 31? )
\8--' 1,600,000 liability
a. 310,000 debit b. 1,600,000 asset
b. 310,000 credit c. 800,000 liability
c. 650,000 debit d. 800,000 asset
d. 650,000 credit
640 641
Probll'lll 18-21 (I FRS ) 1. Whnt omounL s hould b1 · recogni zed »s employee benefi t
•J .,,, 1lw followi ng information rt!lnt"d ex pc nttc in income slu Wtn unL for the curre nt year?
. Comp,ll
Damcn , ''"· prov111cu
l f r the c111-r1•11I Y«':1 1..• u
!\t the beginnirig of current yea r , t he _discou~1t' 1~ and 3. What is the actuarial loss arising from the in crease in
projecte d benefit obligation?
~xpected rate of return are 5% and 'Jo/o _respectively.
a. 191,000
At the end of current year, the disco1:1nt rate and expected b. 300,000
rate of return are 6% and 139/o ~espect1vely. C. 185,000
d. I 76,000
a. 150,000 accrued
b. 1150,000 prepaid
Ca_ 100,000 accrued
d. 100,000 prepaid
642 643
Problem 18-23 Multiple choice (IAA)
Problem 18-22 (IFRS) . .
'd d the followmg mfor mation .
Company prov1 fite pla n for t I1e curren t year: in
1. A pension liability is re·ported when
U}t'mate
i . defined bene
relation to a a. The projected benefit obligation exceeds the fair value
· January 1 Decernber 3l
of plan assets.
2,600,000 3,000,000 b. The accumulated benefit obligation is less than the
Fair value of plan assets 2,000,000
Projected benefit obligation fair value of plan assets.
Prepaid/accrued benefit cost - surplus
600,000 90o,000 c. The pension expense reported for the period is greater
200,000 than the funding amount for the same period.
Asset ceiling
400,000 600,000 d. Cumulative other comprehensive income exceeds the
Effect of asset ceiling
I 646 647
Prob lem 18-24 (AICPA Ad apte d )
, . value of pe n s ion be ne fit s ncc ru ed to .
1. 1 he prese nt . to future coinpc n sa t1 on l dijt,.
11 :-i n g assumptions 11 ~ CV('! 1
648