Activity#1-Employee Benefits (Postemployments and other Employee

Benefits)
Part I- Theories: Choose the letter of the correct answer. (1 point)

1. Which is incorrect concerning the recognition and measurement of a defined benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense and there is a possibility
of actuarial gains and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution
due for the period.

2. It is the increase in the present value of the defined benefit obligation for employee service in prior
periods, resulting from a plan amendment or curtailment.
a. Current service cost
b. Net interest
c. Past service cost
d. Employee benefit cost

3. Which of the following statements is incorrect concerning the actuarial assumptions?

a. Actuarial assumptions shall be unbiased and mutually compatible.
b. Actuarial assumptions are unbiased if they are neither imprudent nor excessively
conservative.
c. Actuarial assumptions comprise of demographic assumptions and financial
assumptions.
d. Postemployment benefit obligations shall be measured on a basis that reflects current
salary and ignores future salary increases.

4. What is the treatment of actuarial gains and losses?

a. As remeasurements recognized immediately in other comprehensive income and subsequently
recycled to profit or loss.
b. As remeasurements recognized immediately in profit or loss.
c. As remeasurements recognized immediately in retained earnings.
d. As remeasurements recognized immediately in other comprehensive income and permanently
excluded from profit or loss.

5. Which of the following statements characterizes defined contribution plans?

a. Defined contribution plans are more complex in construction than defined benefit plans.
b. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.

Part II- A. Problem Solving. Show your solutions in good form. (2 points per requirement)

On January 1, 2019, Rachelleen Company provided the following information in relation to its defined
benefit plan:
 Fair value of plan assets 6,000,000
Projected benefit obligation 5,000,000
Prepaid/accrued benefit cost-surplus 1,000,000
Asset ceiling 700,000
Effect of asset ceiling 300,000

During the current year, the following data are gathered:

Current service cost 700,000
Actual return on plan assets 900,000
Contribution to the plan 1,000,000
Past service cost 200,000
Decrease in PBO due to change in actuarial assumptions 500,000
Asset Ceiling on December 31, 2019 1,200,000
Discount rate 10%

Required:
1. Determine the FV of plan assets on December 31, 2019.
2. Determine the projected obligation on December 31, 2019.
3. Determine the effect of asset ceiling on December 31, 2019.
4. Compute the employee benefit expense for the current year.
5. Compute the “remeasurements” on December 31, 2019.
6. Prepare the journal entry to record the employee benefit expense.
7. Reconcile the prepaid/accrued benefit cost account.

Part II – B. Problem Solving: Show your computations in good form. (2 points per requirement)

Problem A
The following relates to the defined benefit pension plan for the Citywide Company for the year
ending December 31, 2019:

Projected benefit obligation, Jan. 1 6,700,000

Projected benefit obligation, Dec. 31 7,200,000
Fair value of plan assets, Jan. 1 6,500,000
Fair value of plan assets, Dec. 31 6,900,000
Expected return on plan assets 675,000
Actuarial loss due to increase in PBO 150,000
Employer contribution 300,000
Benefits paid to retirees 600,000
Discount rate 10%

1. How much would be the current service cost for the year?
2. How much would be the actual return on plan assets?
3. What is the amount of remeasurement gain or loss on plan assets?

Problem B
The following information relates to Company K’s pension plan:
Plan asset, January 1, 2019 950,000
Defined benefit obligation, January 1, 2019 1,000,000
Current service cost for 2019 90,000
Discount rate at January 1, 2019 10%
Expected return on plan asset at January 1, 2019 100,000
Net remeasurement loss arising in 2019 15,000
Past service cost 30,000
Vesting period for past service cost 3 years

4. What amount of defined benefit cost should be recognized during 2019?

Problem C
The following information is made available involving the defined benefit pension plan of Diwata
Company for the year 2019:

Fair value of plan asset, 1/1/19 3,500,000

Present value of benefit obligation, 1/1/19 3,750,000
Current service cost 700,000
Actual return on plan asset 420,000
Contribution to the plan 600,000
Benefits paid to retirees 750,000
Decrease in present value of benefit obligation
due to change in actuarial assumptions 100,000
Present value of defined benefit obligation settled 250,000
Settlement price of defined benefit obligation 200,000
Discount rate 10%

5. What amount of employee benefit cost should be reported in the profit or loss?
6. What is the net amount of remeasurements for the year 2019?

Problem D
The Feather Corporation received the following report from its actuary at the end of the year:

01/01/19 12/31/19
Projected benefit obligation 5,200,000 5,920,000
Fair value of pension plan assets 5,000,000 5,760,000
Remeasurement gain or loss on plan assets ?
Remeasurement loss on obligation 36,000
Discount rate 12%
Benefits paid during the year 740,000
Contributions made during the year 500,000

7. What is the amount of employee benefit expense to be charged against income for the year 2019?

Problem E
The following information relates to the defined benefit pension plan for the Citywide Company for
the year ending December 31, 2019:
Projected benefit obligation, January 1 6,900,000
Projected benefit obligation, December 31 7,793,500
Fair value of plan assets, January 1 7,552,500
Fair value of plan assets, December 31 8,347,500
Employer contribution 637,500
Benefits paid to retirees 585,000
Discount rate 10%
Ceiling- January 1 300,000

8. How much would be the employee benefit expense (net pension cost) for the year 2019?

Problem F
G Company had the following information on December 31, 2019:

Fair value of plan assets, Dec 31 8,000,000

Actuarial gain due to decrease in PBO 50,000
Discount rate 10%
Return on plan assets 500,000
Benefits paid 400,000
PV of PBO settled 500,000
Settlement loss on obligation settled 100,000
Contribution to the fund 1,500,000

9. Assuming there is no change in actuarial assumptions, what is the amount to be debited to other
comprehensive income?

Problem G
I Company provided the following information on December 31, 2019:
Current service cost 520,000
Actual return on plan assets 810,000
Interest expense on PBO 590,000
Interest income on plan assets 150,000
Loss on plan settlement 240,000
Past service cost during the year 360,000
Contribution to pension fund 950,000
10. What portion (total amount) of these items will be added to the Projected benefit obligation
(PBO)?

Problem H
Jessabel Company has established a defined benefit pension plan for a lone employee.
Annual payments under the pension plan are equal to the employee’s highest lifetime salary
multiplied by 3% multiplied by number of years with the entity.
On December 31, 2019, the employee had worked for 15 years. The current salary is P500,000.
The employee is expected to retire in 5 years and the salary increases are expected to average 4% per
year during that period.
The employee is expected to live for 6 years after retiring and will receive the first annual pension
payment one year after retirement.

The discount rate is 12%. The relevant present value and future value factors are:

Future value of 1 at 4% for 5 periods 1.217

PV of an ordinary annuity of 1 at 12% for 6 periods 4.111
PV of 1 at 12% for 5 periods 0.567
11. What is the projected benefit obligation on December 31, 2019?

Problem I
A director of Easy Company shall receive a retirement benefit of 10% of the final salary per annum for
a contractual period of three years. The director does not contribute to the scheme.
The anticipated salary over three years is as follows:
2019 1,000,000
2020 1,200,000
2021 1,440,000
PV of 1 at 5% discount rate
For one period .9524
For two periods .9070

12. What is the annual benefit that should be used in computing the estimated pension liability?
13. Using the projected unit credit method, what is the estimated pension liability on December 31,
2020?

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Proverbs 3:5-6 “Trust in the LORD with all your heart and lean not on your own understanding; in all
your ways submit to him, and he will make your paths straight.”