'/

BASIC ACCOUNTING CONSIDERATIONS

The benefit plan shall be viewed as a subentity separat-
and di'stinct from the primary entity, which is the employer
entity.
The sub~ntity maintains information that does not appear
in the financial statements of the primary entity.
CHAPTER18 Such information is kept only by means of memorandum
,:gr;ords and therefore not reflected in the general ledger
accounts of the primary entity.
DEFINED BENEFIT PLAN The information contained in the memorandum records of
the subentity contains the following:
Accounting procedures
a. Fair value of plan assets (FVPA)
b. Projected benefit obligation (PBO)

TECHNICAL KNOWLEDGE
To understand the relationship between fair value of plan
assets and projected benefit obligation.
The fair value of the plan asse1s is the source o f fund set
aside in meeting future benefit payments.
The projected benefit obligation or the defined benefi t
obligation is the pxese.nt value of expected future J)ayments
required to settle the obligation arising from employee
service in the current and prior periods.

The FVPA is analogous to an off-statement of financial

To know the computation of employee benefit exp_ense.
To compute remeasurehients ofplan assets, projected benefit
obligation and effect of asset ceiling.
To recognize plan settlement.
To understand the treatment of asset ceiling.
position asset with a debit balance and the PBO is analogous
to an off-statement of financial position liability with a credit ·
balance.
These two items are kept only in the memorandum records
of the subentity.
The "prepaid/accrued benefit cost" is the item that appears
on the financial statement of the employer entity.

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

The entity made a contribution of P600 ,000 to the defined

Discount rnte
e>
benefit plan for the current year. Computations
The journal entry to record the expe nse a nd the contribution Cm-rent service cost 1,200,000
is: Past service cost 300,000
InteresteX:pense on PBO (10% X 7,QQQ,QQQ) 700,000
Employee benefit expense 500,000 Interest income on'FV~ (10% X 5,000,000) 500,000)
Prepaid/accrued benefit cost 100,000 o Jftr -fU .~
Cash 600,000 Employee benefit-expense e;=: 1,700,000

Prepaid/accrued benefit cost Actual return on plan assets 800,000

Interest income on FVPA 500,000)
Observe that the "prepaid/accrued benefit cost" acco u nt is Remeasurement gain on plan assets 300,000
the balancing figure . Actuarial)oss due to increase in PBO 900,000)

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

PIJO - ,Jnnua ry 1 7, 000,000

Cunent se rvice cost 1,200,000
Past se rvice coat 300,000
Interest expe nse on 1'130 700,000

-
l.lcnefits 1mid 500,000)
Actuarial loss due to increuse 111 PBO 900,000
!'BO - Dece mber 31

FVl'A - Dece mber 3 1 6,300,000

PBO - Dece mber 3 1 ~)
Prepnid/occrucu benefit cost - cre dit

609
608

Worksheet jour nal entries
ti1e current. se rvice cos t:
1. To recor cl
Employee benefit expense .
Projected benefi to bhgotion
2_ To recorcl past service cost:
Employee benefit expens~ .
Projected benefi t obhgatwn
3. To record the interest expense on PB ~
Employee benefit expense
Projected benefit obligation
4. To record the interest income onFvP~')
Fair value of plan assets
Employee benefit expense
5. To record contriliutionbo the plan:
Fair value of plan assets
Cash
6. To re cord benefits paid:
Projected benefit obligation
Fair value of plan assets
7. To record a ctuar1al l~ss on iPBG\
Remeasurement loss - O CI
Projected benefit obligation 1_
8. To record (remeasurement gain, on plan asset s:'l
. - __1 - - ~
Fa ll' value of plan assets -< - -
Remeasurement gain_ 0 CI
610
Settle ment of pl a n
;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
v:m,iclc.d- imder a do/inecf.-benefiv pla nl.
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
1,200,000
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.
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
300,000 t h.an th e----amou n t::: 111 t:he----retire men t..iuod..
A lum p s um paymen t:to plan participa nts in exchange for
trhefr.- cights to i:ecei.ve sp ecifi ecl.-.postemploymen t--bene.fits
is"also a settlement.
700,000
700,000 However PAS 19 cla rified that a lump s u m payme nt to plan
participa'nts ,nade:Lunaer the terms of the existing d ef ined
benefit plan i@ a settlement.
This is referred to as routine settlement/ and -considered an
500,000 a ctua rial assumption that s hou1a b e 'i ncludecL.in--t.he
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
qption to take a.lum p sum payment instead of an annuity o r
a periodic payme nt.
1,000,000
. 1,000·,ooo Gain or loss on settlement
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
500,000 plan when the settlement occurs.
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
obligation on the date of settlement.
900,000 The settlement price includes any plan assets transferred
900,000 an d a.ny payments ma.de directly by the entity in connection
with the settle ment. ,,,'-U!;,'-" ,~
- _c'._'",.,.,
~ ny 1ga1 n ?r loss _on settl~ment is fully recognized and
in cluded 1n service cost 111 the · computation of employee
300,000 be nefit expense.
300,oOO
611
 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

Actual return on plan assets 300,0()0

In terest income on FVPA (200,000)
Remeasureme nt gain on plan assets 100,000

Employee benefit expense

=825,000
Remeasurement gain - OCI (100,000)
Defin ed benefit cost 725,000
Contrib ution to the plan 600.~
Accrued benefit cost during the year 125,000

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
Pl ,000,000 shall be reported in the statement of fin ancial
position at year-end.
The difference between the total change in the effect of the
asset ceiling and the interest on the effect of the asset ceiling
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 ,,

Computat ions t: xplunntlon

4,500,000
FVPA - Janu ary 1 700.!lO() Act u n ll y, t he t: fft"ct of fl!ilHJt ce il ing is a cr e'di t;\ i n th e
ContJibution t.o the pion 1,000,000 11;c 111 o rnndun1re co rd whic h is t he 1rn me cate gory a1:1 th e
Actual return on plan osscts projec te d be ne fit obli!( r1Llo n,
( ~ lli).)
Benefi ts paid
FVPA - Decem ber 31
u,ooo.,,goo ;\ny £1i c1·eo ne i n th e effect of t h e asBe t cei l i n g is a.
--=-- rc111 eo1mrem ent loss ond o ny decrease in the effect of asset
,1,000,000 ('r, i/£11 p £0 a. rem eos1trem ent gain.
PBO - J a nua ry l
900,ooo
Curre nt service cost % x 4 000.000)
Interest expense on PBO (lO : <100,000 Jlowc vc r, t he por tion a ttributa ble to the inte res t on the e ffect
Actuarial ga in due t.o decrense 111 l. BO 300,000) of 11 H!le t ce ilin g ill inclu ded in profit or loss as co mpo ne n t of
Benefits paid cm ploycc bc ne Ci t ex pe n1:1c .

p BO - December 31 1,s oo,000

----..;;:: The rem ainder is a re meas ure me nt recogni zed as co mp one nt
of other comprehensive income.
FVPA-Dece mber 31 6,000,000
p B 0- December 31 4,800,000 Re measuremen t gain on plan a ssets 550,000
Prepaid/accrued benefit cost- surplus 1,200,000 Actu a ri a l gain due to decrease in PBO 300,000
800,000 Remeas ure me nt loss on th e cha nge in the effect of

-----
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

e. A se n;siti; ity a1raly sis fo r each s ign rfica n t actuarial

ass ump tion showing the effect on the defined benefit
obligation for any change
f. Des cription of a ny £uncling arrangement a nd policy
g. Expected-contribution to the plan for the next period
Fo r purposes of t his standard, such a hybrid plan is deE.: med
to be a defined benefit plan.
Report of defined contribution plan
The report of a defined contribution plan shall conta in a
statement of net asse t s a vaila ble for 'benefits and a
description of the funding policy.

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.

When plan investments are held for which an estimate is

not possible, the reaso n why fair value is :1ot used sh all be
disclosed.

In practice, in many cases, p lan a s sets will have

determinable fair value beca use in the discharge of their
fiducia ry responsibility, plan trustees w ill manda te t hat
retirement plans hold only marketable investments.

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

Th e re port s h a ll e xpl a in th e relationship between the LIABILITIES

actuarial value of the promised benefits and the net assets
available fo r benefits, a nd the funding policy. Amounts due to stockbrokers on purchase
of securities 300,000
Benefits payable 700,000
As in the case of defin ed contribution plan, investm ents of a Accrued expenses 100,000 1,100,000
defin ed benefi t pla n sha ll be carri ed at fair value .
NET ASSETS AVAILABLE FOR BE NEFITS 5,400 ,000
Actuarial present value of benefits:
Vested benefits 1,200 ,000
Nonvested benefits 200,000 1,400,000
EXCESS OF NET ASSETS OVER BENEFITS 4,000,000

622 623
 f actuarial valuation QUESTIONS _
Frequency 0

.· actuarial valuations a1;e not obtained

In many countnes, , y t hree ye ars. 1. Explain the accounting relationship between fair value
more frequently than ever of plan assets and projected benefit obligation. ,
ke it incumbent upon the plan to Us
PAS 26 does not ma . e 2. What is settlement of a defined° benefit plan?
annual actuarial valuation.
3. Explain the recognition of gain or loss on settlement of a
. luation has not been prepared on the date defined benefit plan.
If an actuaria1 va most recent valuat10n· is· use d an d t h e date
of the repor t , th e . .
of actuarial valuation is disclosed. 4. What is a surplus in relation to a defined benefit plan?

Disclosure 5. Explain asset ceiling.

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? ·

9. Explain the report of a defined contribution plan.

10. Explain the report of a defined benefit plan.

624 625
 1()1• ll "\) ,t V'i ,. '7 \, 1 '1 11" \. \'A J 1 • -•.

PROBLEMS Proble m 18-2 (IAA) \:\',\ (,.1\ 1v

1'"\), !Jlf'\
"i'vJ~, 1., ·u
/. 1,. ', I \'\I
\.'1• , 11

. . 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\)

\ 5. Reconcile the balance of the prepaid/accrued benefit cost

with memorandum records.
C
y
1,vl). en.,

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

1"'11; Prcpuid/11 ccrued benefit COHl (1,200,000)

Current service cost. -,l l'. I
l ,450,ooo
Past service cost 300,000 Th e re maining average ves tin g pe ri od for th e e mployees
Discount rate 10% cove red by th e pa s t service coat is 3 years .
Actual return on pla n assets 500,000
Contribution to the plan ' 1,600,000
The transactions a ffecti ng th e defin ed be ne fit plan fo r the
Benefits paid to retirees 800,000
current year are aa folJow s:
Required: Curte nt service cost 900,000
Inte rest expense !... 8~ 600,000
1. Determine the employee benefit expense for ·the current Actual return on plan asse ts 700,000
year . Contribution to the plan 500,000
Benefits paid to retirees 150,000
2. Determine the remeasu re m ent at year-end to be
recognized as component of othe r comprehensive income. Effective in the current year, the entity is adopting the
provisions of revised PAS 19 in relation to the defined benefit
3. Prepare journal entry to record the employee benefit plan.
expense .
Required:
4. Compute the balance of the prepaid/accrued be nefit cost - ------..
at year-end. 1. Prepare the adjustment to recognize _th e-.-Jtransitional
--e.ffeet of revised PAS 19.
5. Reconcile the general ledger of the entity w ith the 2. Determine the employee benefit expense for the current
memorandum ledger. year.
I
,A, f''·
tf 3. Prepare journal entry to record the employee benefit
,,:·t expen·s e for the current year.
,_.
4. Compute the prepaid/accrued benefit cost at year-end.
5. Reconcile the general ledger of the entity with the
memorandum records.

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 ~

10%. Th e transactions for the current year relating to the defined -

benefit plan are as follows : f6t '(tr.t,,, r ; Ho. v1v) - •w·i,v · ,P.;:£1 ,, \ v 1,
The a ctual re turn on plan assets was P800,000 during the 4![t> v1:J · 1 VJ1.l\"J - '1A.l'bv'W J~/b,1 i '\.~

Current service cost .., f. ,,, 0 , 00 " 925,000

year. Discount rate
6
pey,-...11 q;o,111'\1 6%
Actual return on plan asse ts "1;! !• i,n, c ·J 485,000
Other related information during the year is as follows: Contribution to the l .... ll> <IW 1;350,000
Benefits paid to retirees 995,000
Contribution to the plan 1,200,000 Increase in projected benefit obligation due to 5'<-', 1 ~;ru,, ·")A
Benefits paid to retirees 1,500,000 changes in actuarial assumptions l i lb ,~ 501 oo?-e
t1e>1rw .,~v, ~ / w;--'" "'
Decrease in projected benefit obligation due . . h ~ -0 ,/ ~
to changes in actuarial assumptions 200,000 Effective 111 t e current year, the e n t ity has applied t e
provisions of revised PAS 19 in relation to the defined benefit
Required: plan.

1. Determine the employee benefit expense for the current Required:

year. 1. Prepare journal entry to recognize the transitional effect
2. Compute the "remeasurement" related to the defined of adopting revise d PAS 19.
benefit plan. 2. Determi_n e the employee benefit expense for the current
year.
3. Prepare journal entry to record the employee benefit
expense. 3. Compute the remeasurement .rela te d to the defined
benefit plan.
4. Compute the prepaid/accrued benefit cost a t year-end.
4. Prepare journal e n try to record the employee benefit
5. Reconcile the general ledge,_r accoun t with the expense.
memorandum record .
5. Compute the prepaid/accrued benefit cost at year-end.
6. Reconcile the general le dger account with the
memorandum record. '{)rt,, b rnr,,,. (- ->
C ~1
p

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

Fair value plan assets 3,450,000

Accumulated benefit obligation 4,300,000
Projected benefit obligation 5,700,000

What is the accrued liability at year-end?

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? ·

a. 7,950,000 a. 578,000 gain

b. 7,450,000 b. 578,000 loss
c, 7,650,000 C. 250,000 gain
d. 9,650,000 d. 250,000 loss

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

to a defined beni>fit p :\I\ o 150,000

II ,
b. l.'15,000
30,00()
Current sel'\·ice cost c. 116, 000
31,00()
Benefits pnid 21,00() d. 1,10,000
Contribution to the fu nd
Fair value ofph1n assets: 2. Whnt is the actu a l ret u rn on pl rin asse ts?
2,100,000
January I
December31
2,400,000 ·a. ~H0,000
Projected benefit obligation: 1.1 : 117,000
January l 2,200,000
c. 163,000
December31 2,600,000
d. 34 1,000
Past sen ·ice cost for the curre nt ye ar 115,000

!\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

4. Wha t is th e. net remea s u re men t gai n or loss for t he

current year?
a. 281,000 gain
b. 281,000 loss
c; 129,000 gain
\i. 129,000 loss

5. What amount shouid be reported as prepaid or accrued

benefit cost at year-end?

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

Current service cost

===
100,000
fair value of plan assets.

Contribution to the plan 350,000 2. A pension asset is reported when

Benefits paid 150,000
Discount rate 10% a. The accumulated benefit obligation exceeds the fair
value of plan assets.
1. What is the actual return on plan assets for _t he current b. The accumulated benefit obligation exceeds the fair
year:
value of plan assets but a past service cost exists.
a. 200,000 c. Plan assets at fair value exceed the accumulated
b. 350,000 benefit obligation.
C. 150,000
d .) Plan assets at fair value exceed the projected benefit
d. 260,000
obligation.
2. Wh at is the actuarial gain due to decrease in PBO?
/ _
3. \Vhich measur~ requires t he use of future salaries in the
a. 50,000 computation of benefit obligation?
b. 40,000
C. 30,QQQ
d. 0 a. Vested benefit obligation
b. Accumulated ben((!fit obligation
3. What amount should be rep6rte d as employee benefit c. Projected benefit obligation
expense?
d. Current benefit obligation
a. 200,000
b. 100,000 4. What is the discount rate for pension plans?
C. 80,000
d. 40,000
a. The market yield at the~ nd o f the reporting period
4WI
· mt 1's t ]ie net remeasurement
/ loss for the current year.? for high quality corporate bonds
/ b. The expected rate of return on plan assets
a. 110,000
b. 220,000 c. The weighted ave rage i nterest rate
I d . The bank prime interest rate \
C. 270,000
d.' 170,000
I 645
I 644
I I
I
 cl hc nl'flt ob lq;p1t1on
n th e proJc•d<'
5. The interest o !J '!'Ill' de fined bl' nefit obli glltion in th e measure of pe n s ion
. . ·rc? Hll' l1t nl 1Jorrow 1n i;r rntc . ohli i,:n t ion th n L
Refl ects the 111 " t ,hi ch rct i rcmcnt lw iwfit"
a. R Occl's the r: 1te ti " r'l11l~
0. It! r l• qllircd lo bo used fo r re po r t in g t he curr e n t
h. c f' 1.y settled .
1w r vice co!!t co mpon e nt of pension ex pense.
be effect iv 0 , , :icttnil rl'tur n on p la n n SRi'lR
1 . .
Is the ,:n in e t\::; tie h. Requ irc1:1 pensio n ex pcni;c to be determined solely on
c. May b~ stnted irn phc1tJy. t h e ba s is o f t he p la n fo r mu la a ppli e d to yea r s of
d.
. d d in the ncl pe ns ion Cos t r ecnu 111 i;c r vi ce to date nntl ba!!etl on ex ist in g sa la1·y level.
-t nc1u e " ?(•d c. Hc q uirca t he longe1:1 t pos1:1 iblc pe r iod for fundin g to
G. Interest co::; 1 d cnefit. plL1 n represe n ts t 110
under a defin e IJ m ax im ize t he ta x de ductio n.
d . I. a no t sa n ct io n ed u nd e r i nte rn a ti o n a l financial
b t ce n t he expecte d a nd actu n\ l'Qliir
a. Short!lge e w n, re portin g s ta ndards for reportin g the current sen /ice
on plan assets. fi coBt compone nt of pens ion ex pense.
. tl1e nature of bcne its .
b· Change- _ Ill• ·the iiroject.ed bene f'i t o 11· ·
1 1gat1on du e lo th
10. In co mputin g t h e cu rre nt se rvi ce cos t compon e nt o f
c. Increnne 111 e
passaae of time. pen s ion expe nse
ncre:se in the fai r value of pl a n a s s e t s due to the
d. I
passage of time. a. The accumulated benefit obligation provides a more
realis tic measure of the pension obligation on a going
7. Vested benefits concern basis.
b. An entity should employ an actuarial funding method
a. Usually require a cer tain minimum number of years to report pension expense that best refleds the cost
of service. of benefits to employees.
b. A.J:e those that the employee is entitled to receive even c. The defin_ed benefit obligation using future
if fired. . compensation level provides a realistic measure of
c. A.J·e not contingent upon additi,o nal service un der the present pension obligation and expense.
plan. 1
d. The actual and estimated return on plan assets should
d. Are defined by all of these . .
1
be recognized.

8. What is the relationship betwf:!en the amount funded and

the amount reported for defined benefit cost ?

a. Defined benefit cost must equal the amount funded.

b. Defined benefit cost is less than the amount funded.
c. Defined benefit cost is more than the amount funded.
d. Defined benefit c6st may be more than; e qual to, or
less than the airtount funded.

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

u. Acci'ue d pension cos~ .

b. J Projected benefit obhgat1on
c Past service cost . .
d·. Accutnulated be ne fit obh gat10n
2. The vest~ ... 11enefits in a pe nsion plnn rcprc1-J e nt
Benefits to be paid to the r etire d emp loyee: .
1-1 .
b. Benefits accumulated in hthe ha.ndds of tru stce.
c. Benefits to be paid to t e reti re e mp 1oyce in tr.·
current year . .
d . Benefits that are n<2.,ti contingen t on the e mploH:(,
continuing in the service of the e mployer.
3. In the calculation of pension expen se under a define1
benefit plan, which component will not be inciuded?
a. Actuarial present value of benefits attributed by th~
pension benefit formula to employee service durin::
current period ·
b. Interest cost on the projected benefit obligation
c'., Actual return on plan assets
--d. Gain or loss on plan settlement
v{,1 \a
4. When may the entity · net assets and liabilities of th~
various retirement plans?
a . . When the estimated cash inflows and outflows are
similar in pattern.
b. When the assets and liabilities are both financial.
c. Assets and liabilities may always be netted.
d. Assets and liabilities may be netted when there is 8
legally enforceable right to use the· assets of one plan
to settle the obligations of another plan.
5. Retirement benefit plan investments shall be carried at
( a. Fair value
'o. Historical cost
c. Amortized cost
d. V'llue in use

648