ACCOUNTING 4 EMPLOYEE BENEFITS

1. Which of the following accounting principles best describes the rationale for reporting a
liability for earned but unused compensated absences?
a. Historical cost c. Materiality
b. Full disclosure d. Matching

2. Which of the following criteria is not required for the recognition of a liability for
compensated absences?
a. The amount of the obligation must be estimable.
b. Payment of the obligation must be probable.
c. Payment of the obligation will require the use of current assets.
d. The compensation either vests with the employee or can be carried forward to
subsequent years.

3. Each full-time employee of Sunshine greenhouse is entitled to ten paid sick days each
year. The sick pay is not vested, but any unused sick days can be carried over to
subsequent years. Under PAS 19 Employee benefits, Sunshine Greenhouse should
a. recognize sick pay as an expense when actually paid.
b. recognize an estimated current liability for all unused sick pay at the end of each
period.
c. recognize an estimated noncurrent liability for all unused sick pay at the end of
each period.
d. recognize an estimated current liability for all unused sick pay at the end of each
period taking into consideration the possibility that employees may leave before
they use the accumulated non-vesting sick leaves.

4. Laid Back Corp. follows the practice of paying all employees for vacation. The vacation
pay is not vested, but it carries over for one year if unused. Under GAAP, the obligation
for earned but unused vacation should be
a. accrued as a current liability.
b. disclosed as a contingent liability.
c. ignored until incurred.
d. accrued or not accrued according to the judgment of management.

5. The vested benefits of an employee in a pension plan represent benefits

a. to be paid to the retired employee in the current year.
b. to be paid to the retired employee in subsequent years.
c. to be paid from funds currently in the hands of an independent trustee.
d. that are not contingent on the employee’s continuing in the service of the
employer.

6. Which of the following taxes must be paid by both the employee and the employer?
a. Social security services monthly remittances
b. Employee’s compensation income tax
c. Employer’s business tax
d. Employee’s retirement benefits
7. Which of the following statements characterizes defined contribution plans?
a. They 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.
8. An entity contributes to an industrial pension plan that provides a pension arrangement
for its employees. A large number of other employees also contribute to the pension
plan, and the entity makes contributions in respect of each employee. These
contributions are kept separate from corporate assets and are used together with any
investment income to purchase annuities for retired employees. The only obligation of
the entity is to pay the annual contributions. This pension scheme is a
a. Multiemployer plan and a defined contribution scheme.
b. Multiemployer plan and a defined benefit scheme.
c. Defined contribution plan only.
d. Defined benefit plan only.

9. According to PAS 19, short-term employee benefits are recognized

a. at each year-end
b. at each month-end
c. on a semi-monthly basis
d. when an employee has rendered service in exchange for those benefits.

10. According to PAS 19, contributions to a defined contribution plan are recognized
a. at each year-end
b. when an employer makes those contributions.
c. when an employee has rendered service in exchange for those contributions.
d. at the beginning of each reporting period.

11. These are employee benefits (other than termination benefits) which are payable after
the completion of employment
a. Short-term c. Share-based
b. Other long-term d. Post-employment

12. Post-employment benefit plans may be

a. Defined contribution plan c. State plan
b. Defined benefit plan d. a or b
13. It is a type of retirement plan where the benefit to be received by the employee is
dependent on the contributions made to the plan and on the investment performance
of the plan. The risk that the benefits to be received may be insufficient is retained by
the employee.
a. Defined contribution plan c. Leche plan
b. Defined benefit plan d. a or b

14. It is a type of retirement plan where the employer assures a definite amount of benefit
to be received by the employee. The risk that funds needed to pay the agreed benefits
may be insufficient is retained by the employer.
a. Defined contribution plan c. Plant vs. Zombies
b. Defined benefit plan d. a or b
15. Where a post- employment benefit plan contains characteristics of both defined
contribution and defined benefit, the plan is considered to be
a. Defined contribution plan c. Hybrid plan
b. Defined benefit plan d. a or b

16. It refers to a plan where both the employer and employee contribute to a retirement
fund.
a. Contributory plan c. Funded plan
b. Non-contributory plan d. Chip-in plan
17. It refers to a plan where only the employer contributes to a retirement fund.
a. Contributory plan c. Unfunded plan
b. Non-contributory plan d. Libreko plan

18. It refers to a plan where plan assets are transferred to a trustee who assumes obligation
of managing the fund and disbursing funds to retiring employees.
a. Funded plan c. Unfunded plan
b. Non-contributory plan d. Outsourcing plan

19. An entity has decided to improve its defined benefit pension scheme. The benefit
payable will be determined by reference to 60 years’ service rather than 80 years’
service. As a result, the defined benefit pension liability will increase by P10 million. The
average remaining service lives of the employees is 10 years. How should the increase in
the pension liability by P10 million be treated in the financial statements?
a. The past service cost should be charged against retained profit.
b. The past service cost should be charged against profit or loss for the year.
c. The past service cost should be spread over the remaining working lives of the
employees.
d. The past service cost should not be recognized.

20. Which of these events will cause a change in a defined benefit obligation?
a. Changes in mortality rates or the proportion of employees taking early
retirement.
b. Changes in the estimated salaries or benefits that will occur in the future.
c. Changes in the estimated employer turnover.
d. Changes in the discount rate used to calculate defined benefit liabilities and the
value of assets.
e. All of the above.

21. Which of these elements are taken into account when determining the discount rate to
be used?
a. Market yields at the balance sheet date on high-quality corporate bonds.
b. Investment or actuarial risk.
c. Specific risk associated with the entity’s business.
d. Risk that future experiences may differ from actuarial assumptions.

22. An entity operates a defined benefit plan that pays employees an annual benefit based
on their number of years of service. The annual payment does allow the employer to
vary the final benefit. Over the last five years the entity has used this flexibility to
 increase employees’ pensions by the current growth in earnings per share. How will
employees’ benefit be calculated if they retire in the current period?
a. It will be based on the existing plan rules with no additional award.
b. It will be based on the existing plan rules plus the current rate of growth of
earnings per share.
c. It will be based on the plan rules plus the current rate of inflation.
d. It will be based on the plan rules plus the increase in earnings per share
anticipated over the remaining working lives of the employees.

23. Which of these assets should be included within the valuation of plan assets?
a. Unpaid contributions.
b. Unlisted corporate bonds that are redeemable but not transferable without the
entity’s permission.
c. A loan to the entity that cannot be assigned to a third party.
d. Investments in listed companies.
24. An entity has decided to protect its pension obligation with an insurance policy. The
insurance policy permits the entity to cash in the insurance policy. Is this insurance
policy qualifying insurance policy that will be included in plan assets?
a. Yes.
b. No.

25. An entity uses Philippine Financial Reporting Standards to prepare its financial
statements, but the defined benefit obligation has been calculated using assumptions
that are different from PFRS. The financial statements of the entity also do not take into
account unrecognized past service costs. How should the entity measure its net pension
liability?
a. The net present value of the defined benefit obligation less the fair value of the
plan assets.
b. The net present value of the defined benefit obligation less the fair value of the
plan assets less the unrecognized past service costs.
c. The net present value of the defined benefit obligation less the fair value of the
plan assets. In addition, a review of the assumptions should be undertaken to
remeasure the obligation.
d. The value in the entity’s balance sheet will simply be used in the consolidated
financial statements.

26. Which of the following statements characterizes defined benefit plans?

a. They are comparatively simple in construction and raise few accounting issues
for employers.
b. Retirement benefits are based on the plan’s benefit formula.
c. Retirement benefits depend on how well pension fund assets have been
managed.

d. All of the above.

27. Which of the following is not an issue in accounting for defined benefit plans?
a. The amount of pension expense to be recognized
b. The amount of pension liability to be reported
 c. The amount of funding (contributions) required by the plan.
d. Disclosures needed to supplement the financial statements

28. When the fair value of the pension fund asset is greater than the present value of the
defined benefit obligation, the differences is
a. reported as prepaid pension cost.
b. reported as a noncurrent liability.
c. reported as a contra equity adjustment.
d. not recognized on the balance sheet.

29. What is measured by the present value of defined benefit obligation?

a. The pension expense, computed by the plan formula applied to years of service
to date, assuming future salary levels.
b. The pension expense, computed by the plan formula applied to years of service
to date, using existing salary levels.
c. The pension obligation, computed by the plan formula applied to years of service
to date, assuming future salary levels.
d. The pension obligation, computed by the plan formula applied to years of service
to date, using existing salary levels.
30. Under PAS 19, the net defined benefit liability (asset) is computed using the difference
between the
a. present value of defined benefit obligation and the fair value of plan assets.
b. net periodic pension cost and the current period contribution.
c. fair value of plan assets and the market-related value of plan assets.
d. projected benefit obligation and the market-relate value of plan assets.

31. If the actual return on plan assets exceeds the interest income on plan assets for the
period, the difference is
a. a deferred loss.
b. a deferred gain.
c. recognized as a loss in the current period.
d. recognized as a gain in the current period.

32. The projected unit credit method is the measure of pension obligation that
a. can no longer be used under GAAP as an estimate for reporting the service cost
component of pension expense.
b. is not an allowable estimate for reporting the service cost component of pension
expense for defined benefit plans.
c. is one of several allowable estimates for reporting the service cost component of
pension expense.
d. is required under PAS 19.

33. PAS 19 states that service cost should be

a. offset against current service cost.
b. recognized in the period of plan amendment or curtailment.
c. amortized over the expected service period.
d. recorded as a prior period adjustment.
34. Which of the following is a component of defined benefit cost?
a. Interest cost
b. Amortization of transition gain or loss
c. Benefits paid to retirees
d. Amortization of prior service cost

35. It is the excess of the fair value of plan assets over the present value of the defined
benefit obligation.
a. Surplus / Prepaid c. Excess of fair value over obligation
b. Accrued benefit cost d. Unrecognized part service cost

36. Which of the following is true regarding the computation of the service cost component
of pension expense?
a. The projected benefit obligation computed using future salary levels provides a
reasonable measure of present pension obligation and expense.
b. The projected benefit obligation computed using present salary levels provides a
reasonable measure of present pension obligation and expense.
c. The projected benefit obligation computed using present salary levels provides a
reasonable measure of future pension obligation and expense.
d. The projected benefit obligation computed using future salary levels provides a
reasonable measure of future pension obligation and expense.
37. An employer’s obligation for postretirement health benefits that are expected to be
provided to an employee must be fully accrued by the date the
a. Employee is fully eligible for benefits c. Benefits are utilized
b. Employee retires d. Benefits are paid
38. Under revised PAS 19, “service cost” comprises
a. Current service cost only
b. Current service cost and past service cost
c. Current service cost and any gain or loss on settlement
d. Current service cost, past service cost and any gain or loss on settlement

39. In relation to measuring the pension expense under a defined benefit plan, which
discount rate is used?
a. Risk that future experiences may differ from actuarial assumptions.
b. Specific risk associated with the entity’s business.
c. Investment or actuarial risk.
d. Market yields at the balance sheet date on high-quality corporate bonds.

40. The vested benefits of an employee represent

a. Benefits to be paid to the retired employee in the current year
b. Benefits to be paid to the retired employee in the subsequent year
c. Benefits accumulated in the hands of an independent trustee
d. Benefits that are not contingent on the employer’s continuing in the service of
the employer

41. If payment of employee’s compensation for future absences is probable and the amount
can be reasonably estimated and the obligations relates to rights the vest or
accumulate, the compensation should be
 a. Accrued if attributable to employee’s service are not yet rendered
b. Accrued if attributable to employee’s service are already rendered
c. Accrued if attributable to employee’s service whether or not already rendered
d. Recognized when paid

42. An entity maintains a defined benefit pension plan for its employees. The service cost
component of the net periodic pension cost is measured using the
a. Projected benefit obligation c. Unfunded vested benefit obligation
b. Expected return on plan assets d. Unfunded accumulated benefit obligation

43. Which of the following is reported as interest?

a. Pension cost interest
b. Post-retirement health care benefit interest
c. Imputed interest on non-interest-bearing note
d. Interest incurred to finance construction of machinery for own use

44. Under PAS 19, plan assets include all of the following, EXCEPT:
a. Assets held by a long-term employee benefit fund
b. Qualifying insurance policies
c. Assets that are available to be used only to pay fund employee benefits and are
not available for payments to creditors even in bankruptcy
d. Non-transferable financial instruments issued by the reporting enterprise
45. Under PAS 26, investments held by retirement benefit plans should be stated at which
of the following values in their statement of net assets?
a. Net realizable value c. Original cost less impairment
b. Fair value d. Value in use

46. PAS 26 (Accounting and reporting by retirement benefit plans) should be applied to
which one of the following?
a. The costs to companies of employee retirement benefits
b. Reports to individuals of their future retirement benefits
c. The financial statements relating to an actuarial business
d. The general purpose financial reports of pension schemes

47. According to PAS 26 (Accounting and reporting by retirement benefit plans), which of
the following may be disclosed in the financial report of a defined benefit plan but
would not be shown in the financial report of a defined contribution plan?
a. Employee contributions c. Government bonds held
b. Employer contributions d. Actuarial present value of retirement benefits

48. Which of the following is a component of an amount to be recognized in profit or loss

under a defined benefit plan?
i. Current service cost ii. The difference between the actual return on plan asset
and interest income on plan assets iii. Any settlement loss or settlement gain iv. Past
service cost
a. i and iv
b. ii and iii
c. i, iii and iv
 d. i, ii, iii, and iv

49. An employer’s obligation for post-retirement health benefits that are expected to be
provided to an employee must be fully accrued by the date the
a. Employee is fully eligible for benefits
b. Employee retires
c. Benefits and utilized
d. Benefits are paid

50. The component of defined benefit cost includes all of the following, except:
a. service cost
b. net interest
c. Remeasurement
d. Plan contribution