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Chapter 6
Employee Benefits Part 2
1. Which of the following components should be included in the calculation of net
defined benefit cost recognized for a period by an employer sponsoring a defined
benefit pension plan?
a. No No Yes
b. Yes No Yes
c. Yes Yes No
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d. Yes Yes Yes
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2. Which of the following concepts for postretirement benefit plans is comparable to
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the projected unit credit method of pension plans?
a. Accrued benefit method pro-rated on service
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b. Expected Postretirement Benefit Obligation (EPBO)
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c. Actual return on plan assets
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d. Expected return on plan assets
recognized immediately.
c. Actuarial gains and losses are recognized immediately.
d. Past service costs are recognized immediately.
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4. The interest cost component of the net defined benefit cost is determined using
a. the settlement rate of interest.
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7. These are changes in the present value of the defined benefit obligation resulting
from experience adjustments and the effects of changes in actuarial assumptions.
a. Past service cost c. Settlement gains and losses
b. Actuarial gains and losses d. Interest cost
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c. the expected rate of return on plan assets
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d. the proportion of plan members with dependents who will be eligible for
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benefits
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10. According to PAS 19, the rate used to discount post-employment benefit obligations
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shall be determined by reference to market yields at the end of the reporting period
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a. risk-free rate c. current bank rate
b. high quality corporate bonds d. effective interest rate
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“Education is the passport to the future, for tomorrow belongs to those who
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ANSWERS TO QUIZ 1:
1. A 6. C
2. A 7. B
3. A 8. A
4. B 9. D
5. B 10. B
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1. The following information relates to the defined benefit pension plan of the
McDonald Company for the year ending December 31, 2002:
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The net amount of remeasurement of the net defined benefit liability (asset) included
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in the defined benefit cost for 2002 would be
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a. 77,500. b. 47,500. c. 32,500. d. 12,500.
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2. Flash Inc. has a defined benefit plan for its employees. The following information
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relates to this plan:
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Present value of defined benefit obligation, 10,000,0
January 1, 2002 00
Fair value of plan assets, January 1, 2002 10,400,0
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00
Service cost - 2002
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800,000
Actual return on plan assets - 2002 900,000
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An actuarial loss of ₱20,000 was incurred during 2002. There was no unrecognized
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prior service cost or unrecognized gains or losses. Flash's defined benefit cost for the
year was
a. 880,000. b. 920,000. c. 640,000. d. 988,000.
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5. How much is the present value of the defined benefit obligation on December 31,
20x2?
a. 1,298,437 b. 1,217,680 c. 1,085,710 d. 1,908,117
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“And we know that in all things God works for the good of those who love him, who have
been called according to his purpose.” – (Romans 8:28)
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SOLUTIONS
1. D
Solution:
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2. C
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Solution:
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Service cost 800,000
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Interest cost on the defined benefit obligation (10M x 10%) 1,000,000
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Interest income on plan assets (10.4M x 10%) (1,040,000)
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Actuarial (gains) and losses 20,000
Difference between interest income on plan assets and return
on plan assets (140,000)
Defined benefit cost 640,000
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3. A
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Solution:
PV of defined benefit obligation
480,000 Jan. 1
Benefits paid 200,000 120,000 Current service cost (squeeze)
48,000 Interest cost (480,000 x 10%)
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Dec. 31 488,000
4. D
Solution:
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5. B
Solution:
(13,506,106 x 6%) = 810,366 benefit entitlement per year;
(810,366 x 2 years passed x PV of 1 @10%, n=3) = 1,217,680
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