1. Information on EQUANIMITY COMPOSURE Co.

’s defined benefit plan is shown below:

 PV of defined benefit obligation, Jan. 1 ₱480,000
 PV of defined benefit obligation, Dec. 31 488,000
 Interest cost 10%
 Benefits paid to retirees 200,000
 Increase in present value of defined benefit obligation during the year due
to changes in actuarial assumptions 40,000

How much is the current service cost? (2)

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%)
40,000 Actuarial loss - increase in PV of PBO
Dec. 31 488,000

2. ARTIFACT MAN MADE OBJECT Co. provides an incentive compensation plan under which
its president receives a bonus equal to 10% of ARTIFACT’s profit before tax but after deduction
of the bonus. ARTIFACT’s profit after tax and after bonus for the year is ₱2,545,456. Income tax
rate is 30%. How much is the bonus?

Solution:
Squeeze upwards
Profit before bonus and before tax 4,000,000
Bonus before tax but after bonus
(3,636,366 x 10%) (363,636)
Profit before tax but after bonus
(2,545,456 ÷ 70%) 3,636,366
Income tax (2,545,456 ÷ 70%) x 30% (1,090,909)
Profit after tax and after bonus 2,545,456 Start