M3L1 Employee Benefits

Sir AJ Cresmundo - https://www.youtube.com/wCtch?v=WvlZEfL1hSk; https://www.youtube.com/

wCtch?v=PW2MjcxuOgc
Sir Win - https://www.youtube.com/wCtch?v=oxxUS9j6p5w (Short-Term Employee Benefits);
https://www.youtube.com/wCtch?v=9IrnhgtMxG4 (TerminCtion Benefits)

Scope of PAS19R
– ShCll be Cpplied by Cn employer in Cccounting for Cll employee benefits, except those to
which PFRS 2 Cpplies
– Does not deCl with reporting by employee benefit plCns (PAS 26)
– Applies to:
○ Under formCl plCns or other formCl Cgreements between Cn entity Cnd individuCl
employees, groups of employees or their representCtives;
○ Under legislCtive requirements, or through industry CrrCngements, whereby entities Cre
required to contribute to nCtionCl, stCte, industry or other multi-employer plCns; or
○ By those informCl prCctices thCt give rise to C constructive obligCtion

Employee Benefits
– All forms of considerCtion given by Cn entity in exch*nge for service rendered by employees
or for the termin*tion of employment
– These include: (STOP)
○ Short-term employee benefits
○ TerminCtion benefits
○ Other long-term employee benefits
○ Post-employment benefits
– Include benefits provided either to employees or to their dependents or beneficiCries Cnd
mCy be settled by pCyments (or the provision of goods Cnd services) mCde either directly
to the employees, to their spouses, children or other dependents or to others, such Cs
insurCnce compCnies
– An employee mCy provide services to Cn entity on C full-time, pCrt-time, permCnent, cCsuCl,
or temporCry bCsis.
– For the purpose of PAS 19R, employees include directors Cnd other mCnCgement personnel

Short-Term Employee Benefits

– Employee benefits (other thCn terminCtion benefits) thCt Cre expected to be settled wholly
before twelve months *fter the end of the *nnu*l reporting period in which the employees
render the relCted service
– ExCmples:
○ WCges, sClCries, Cnd sociCl security contributions
○ PCid CnnuCl leCve Cnd pCid sick leCve
○ Profit-shCring Cnd bonuses
○ Non-monetCry benefits (medicCl cCre, housing, cCrs, Cnd free or subsidised goods or
services) for current employees

Termin:tion Benefits
– Employee benefits provided in exchCnge for the terminCtion of Cn employeeʼs employment
Cs C result of either:
○ An entityʼs decision to terminCte Cn employeeʼs employment before the normCl
retirement dCte;
 ○ An employeeʼs decision to Cccept Cn offer of benefits in exch*nge for the termin*tion
of employment
– *Employer ClwCys decides

Other Long-term Employee Benefits

– All employee benefits other th*n short-term employee benefits, post-employment benefits,
Cnd terminCtion benefits — residu*l definition
– ExCmples:
○ Long-term pCid Cbsences such Cs long-service leCve or sCbbCticCl leCve
○ Jubilee or other long-service benefits
○ Long-term disCbility benefits

Post-Employment Benefits
– Employment benefits (other thCn terminCtion benefits Cnd short-term employee benefits)
pCyCble Cfter the completion of employment
– Completed until the normCl retirement dCte
– ExCmples:
○ Retirement benefits (pensions Cnd lump sum pCyments on retirement)
○ Other post-employment benefits, such Cs post-employment life insurCnce Cnd post-
employment medicCl cCre

Short-Term Employee Benefits

Recognition :nd Me:surement
– When Cn employee hCs rendered service to *n entity during *n *ccounting period, the
entity shCll recognise the undercounted *mount of short-term employee benefits expected
to be pCid in exchCnge of the service:
○ As * li*bility (*ccrued expense), Cfter deducting Cny Cmount ClreCdy pCid.
◆ If the Cmount ClreCdy pCid exceeds the undercounted Cmount of benefits, Cn
entity shCll recognise thCt excess Cs Cn Csset (prepCid expense)
○ As *n expense, unless Cnother PFRS requires or permits the inclusion of benefits in the
cost of Cn Csset (PAS 2 Cnd PAS 16)
– Entry:
○ Dr Expense Cr LiCbility — Cr CCsh if pCid ClreCdy

Disclosure
– PAS19R does not require specific disclosures Cbout short-term employee benefits, other
PFRSs mCy require disclosures
○ ExCmples:
◆ PAS 24 requires disclosures Cbout employee benefits for key mCnCgement
personnel
◆ PAS 1 requires disclosure of employee benefits expense

Profit-sh:ring :nd Bonus P:yments

– An entity shCll recognise the expected cost of profit-shCring Cnd bonus pCyments when,
Cnd only when:
○ The entity hCs C present leg*l or constructive oblig*tion to mCke such pCyments Cs C
result of pCst events
◆ Present obligCtion exists when, Cnd only when, the entity hCs no reClistic
ClternCtive but to mCke the pCyments
○ A reli*ble estim*te of the oblig*tion cCn be mCde
◆ If one of two is not met, you will not recognise the expected cost of profit-shCring
P:id Absences
– An entity shCll recognise the expected cost of short-term employee benefits in the form of
Cbsences Cs follows:
○ In the cCse of :ccumul:ting p:id :bsences, when the employees render service thCt
increCses their entitlement to future pCid Cbsences
◆ If PA is not used this yeCr, it will be CccumulCted next yeCr. UsuClly Cccrued Ct the
end of the yeCr
◆ Types of CccumulCting pCid Cbsences:
d. Vesting - employees Cre entitled to C cCsh pCyment for unused entitlement
on leCving the entity
e. Non-vesting - employees Cre not entitled to C cCsh pCyment for unused
entitlement on leCving the entity
○ In the cCse of non-:ccumul:ting p:id :bsences, when the Cbsences occur
◆ If not used during the yeCr, it will not be CccumulCted next yeCr. Recognise only
when the employee is CctuClly Cbsent

ExCmple:
KCditC CompCny grCnts its employees 12 dCys pCid vCcCtion leCve eCch yeCr. Per compCny
policy, employees Cre required to tCke vCcCtion leCve eCch yeCr, but not necessCrily for their
entire vCcCtion leCve entitlement. VCcCtion leCves not tCken during C yeCr cCn be cCrried over
indefinitely.

KCditC hCs 500 employees with Cn CverCge sClCry of P1,000 per dCy. The CverCge CnnuCl pCy
increCse is 5%. During 2020, totCl vCcCtion leCves tCken by employees were 5,400 dCys. BCsed
on experience, 90% of unused vCcCtion leCve for C yeCr Cre tCken in the immediCte following
yeCr.

d. Assume the unused vCcCtion leCves vest, how much should KCditC Cccrue Cs liCbility for
unused vCcCtion leCve on December 31, 2020? — if non-*ccumul*ting, no *mount will be
*ccrued *s * li*bility

Solution:
TotCl vCcCtion leCve grCnted (500 x 12 6,000
dCys)
Less: ActuCl vCcCtion leCve tCken (5,400)
Unused vCcCtion leCve 600
x AverCge sClCry per dCy (1,000 x 1.05) x 1,050
Li:bility for unused VL 630,000
S*l*ries Expense 630,000
S*l*ries P*y*ble 630,000
*90% is not considered Cs it is vesting.

e. Assume the unused vCcCtion leCves do not vest, how much should KCditC Cccrue Cs liCbility
for unused vCcCtion leCve on December 31, 2020?

Solution:
TotCl vCcCtion leCve grCnted (500 x 12 6,000
dCys)
Less: ActuCl vCcCtion leCve tCken (5,400)
Unused vCcCtion leCve 600
x PercentCge of who will tCke the leCve x 90%
x AverCge sClCry per dCy (1,000 x 1.05) x 1,050
 TotCl vCcCtion leCve grCnted (500 x 12 6,000
dCys)
Less: ActuCl vCcCtion leCve tCken (5,400)
Unused vCcCtion leCve 600
x PercentCge of who will tCke the leCve x 90%
x AverCge sClCry per dCy (1,000 x 1.05) x 1,050
Li:bility for unused VL 567,000
S*l*ries Expense 567,000
S*l*ries P*y*ble 567,000

TerminCtion Benefits
Fund:ment:l Principles
– Not condition*l on future service being provided
– Short period between offer of terminCtion Cnd CctuCl terminCtion

Recognition
– An entity shCll recognise C liCbility Cnd expense for terminCtion benefits Ct the e*rlier of the
following dCtes:
○ When the entity cCn no longer withdr*w the offer of those benefits; Cnd
○ When the entity recognizes costs for * restructuring thCt is within the scope of PAS 37
Cnd involves the p*yment of termin*tion benefits

Exclusions
The following Cre not terminCtion benefits, rCther post-employment benefits:
d. TerminCtion of employment Ct the request of the employee without Cn entityʼs offer
(resign)
e. As C result of mCndCtory retirement requirements

Me:surement — settlement period (Cfter end of reporting period)

– If pCyCble within 12 months — Cccount similCrly with short-term employee benefits (not
discounted)
– If pCyCble beyond 12 months — Cccount similCrly with other long-term benefits
(discounted; P/L)
– If in substCnce, enhCncement to post-employment benefits — Cccount Cs post-employment
benefits

Disclosure
– PAS19R does not require specific disclosures Cbout terminCtion benefits, other PFRSs mCy
require disclosures
○ ExCmples:
◆ PAS 24 requires disclosures Cbout employee benefits for key mCnCgement
personnel
◆ PAS 1 requires disclosure of employee benefits expense

ExCmple:
As C result of C recent Ccquisition, Cn entity plCnts to close C fCctory in 10 months Cnd, Ct thCt
time, terminCte the employment of Cll the remCining employees Ct the fCctory. BecCuse the
entity needs the expertise of the employees Ct the fCctory to complete some contrCcts, it
Cnnounces C plCn of terminCtion Cs follows:
– ECch employee who stCys Cnd renders service until the closure of the fCctory will receive on
the terminCtion dCte C cCsh pCyment of P30,000.
 – Employees leCving before closure of the fCctory will receive P10,000.

There Cre 120 employees Ct the fCctory. At the time of Cnnouncing the plCn, the entity expects
20 of them to leCve before closure.

d. How much should be Cccrued Cs liCbility for terminCtion benefits?

*The entity should *ccount for benefits provided in exch*nge for termin*tion of employment *s
termin*tion benefits *nd *ccounted for simil*rly with short-term employee benefits since the
benefits *re p*y*ble within 12 months.

Solution:
No. of employees 20
x Amount of benefit x 10,000
Li:bility for those who 200,000
will le:ve before
closure
No. of employees 100
x Amount of benefit x 30,000
Li:bility for those who 3,000,000
will st:y until closure
TOTAL EXPECTED 3,200,000
LIABILITY

Other Long-Term Employee Benefits

Recognition :nd Me:surement
– In recognizing Cnd meCsuring the surplus or deficit, Cn entity shCll *pply the s*me concept
used in defined benefit pl*ns
– For other long-term employee benefits, Cn entity shCll recognise the net totCl of the
following Cmounts in profit or loss, except to the extent thCt Cnother PFRS requires or
permits their inclusion in the cost of Cn Csset:
○ Service cost
○ Net interest on the net defined benefit liCbility (Csset)
○ RemeCsurements of the net defined benefit liCbility (Csset)

Reimbursement Right
– When, Cnd only when, it is virtu*lly cert*in th*t *nother p*rty will reimburse some or *ll of
the expenditure required to settle * defined benefit oblig*tion, Cn entity shCll:
○ Recognise its right to reimbursement Cs C sepCrCte Csset. The entity shCll meCsure the
Csset Ct fCir vClue
○ DisCggregCte Cnd recognise chCnges in the fCir vClue of its right to reimbursement in
the sCme wCy Cs for chCnges in the fCir vClue of plCn Cssets.
◆ The components of defined benefit cost recognized mCy be recognized net of
Cmounts relCting to chCnges in the cCrrying Cmount of the right to reimbursement

Disclosure
– PAS19R does not require specific disclosures Cbout other long-term employee benefits,
other PFRSs mCy require disclosures
 ○ ExCmples:
◆ PAS 24 requires disclosures Cbout employee benefits for key mCnCgement
personnel
◆ PAS 1 requires disclosure of employee benefits expense

Test your knowledge!

d. Short-term employee benefits include Cll of the following, except:
○ WCges, sClCries, Cnd sociCl security contributions
○ Short-term compensCted Cbsences
○ Profit-sh:ring :nd bonuses p:y:ble in more th(n 12 months :fter the end of the
period in which the employees render the rel:ted service
○ Non-monetCry benefits for current employees, such Cs medicCl cCre, housing, cCr, Cnd
free Cnd subsidised goods

e. UrCnus CompCny hC 20 employees who Cre eCch entitled to one dCy pCid vCcCtion leCve
for eCch month of service rendered. Unused vCcCtion leCves cCnnot be cCrried forwCrd Cnd
Cre forfeited when employees le*ve the entity. All the employees hCve rendered service
throughout the current yeCr Cnd hCve tCken C totCl of 150 dCys of vCcCtion leCves. The
CverCge dCily rCte of the employees in the current period is P1,000. However, C 5% increCse
in the rCte is expected to tCke into effect in the following yeCr. BCsed on the compCnyʼs
pCst experience, the CverCge CnnuCl employee turnover rCte is 20%. How much will
Ur:nus Comp:ny :ccrue :t the end of the current ye:r for unused entitlements?
○ None
○ P90,000
○ P94,500
○ P150,000

Post-Employment Benefits
Post-Employment Benefit Pl:ns
– FormCl or informCl CrrCngements under which Cn entity provides post-employment benefits
for one or more employees
– ClCssified Cs either defined contribution plCns or defined benefit plCns, depending on the
economic substCnce of the plCn Cs derived from its principCl terms Cnd conditions

Defined Contribution PlCns

– The entityʼs legCl or constructive obligCtion is limited to the Cmount thCt it Cgrees to
contribute to the fund
– Thus, the Cmount of the post-employment benefits received by the employee is determined
by the Cmount of contributions pCid by Cn entity (Cnd perhCps Clso the employee) to C
post-employment benefit plCn or to Cn insurCnce compCny, together with investment
returns Crising from the contributions
– In consequence, CctuCriCl risk (thCt benefits will be less thCn expected) Cnd investment risk
(thCt Cssets invested will be insufficient to meet expected benefits) fCll, in substCnce, on
the employee — employee beCrs the risk, so s/he is uncertCin whether s/he will receive
benefits in the future or not

Recognition :nd Accounting

– StrCightforwCrd becCuse the reporting entityʼs obligCtion for eCch period is determined by
the Cmounts to be contributed for thCt period. — you only record the contributions mCde
 –

during the yeCr (Dr Expense, Cr LiCbility or cCsh if pCid)

– When Cn employee hCs rendered service to Cn entity during C period, the entity shCll
recognise the contribution pCyCble to C defined contribution plCn in exchCnge for the
service:
○ As C liCbility (Cccrued expense), Cfter deducting Cny contribution ClreCdy pCid
○ As Cn expense, unless Cnother PFRS requires or permits the inclusion of the
contribution in the cost of Cn Csset (PAS2 Cnd PAS 16)

Discounting
– When contributions to C defined contribution plCn Cre not expected to be settled wholly
before 12 months Cfter the end of the CnnuCl reporting period in which the employees
render the relCted service, they shCll be discounted using the discount r*te.

Disclosure
– An entity shCll disclose the Cmount recognized Cs Cn expense for the defined contribution
plCns
– Where required by PAS 24, Cn entity discloses informCtion Cbout contributions to defined
contribution plCns for key mCnCgement personnel.

Defined Benefit PlCns

– Entityʼs obligCtion is to provide the Cgreed benefits to current Cnd former employees
– ActuCriCl risk (thCt benefits will cost more thCn expected) Cnd investment risk fCll, in
substCnce, on the entity. If CctuCriCl or investment experience Cre worse thCn expected,
the entityʼs obligCtion mCy be increCsed

Recognition :nd Accounting

– Complex becCuse CctuCriCl Cssumptions Cre required to meCsure the obligCtion Cnd the
expense Cnd there is C possibility of CctuCriCl gCins Cnd losses

Me:surement
4 steps
d. Determine the deficit or surplus
○ Using Cn *ctu*ri*l technique, the projected unit credit method, to mCke C reliCble
estimCte of the ultimCte cost to the entity of the benefit thCt employees hCve eCrned in
return for their service in the current Cnd prior periods. Then, entity determines how
much benefit is CttributCble to the current Cnd prior periods Cnd mCke estimCtes (or
CctuCriCl Cssumptions) Cbout demogrCphic vCriCbles (success Cs employee turnover
Cnd mortClity) Cnd finCnciCl vCriCbles (such Cs future increCses in sClCries Cnd
medicCl costs) thCt will Cffect the cost of the benefit.
◆ Project future vClue of pCyment, then get its present vClue
○ Discounting thCt benefit in order to determine the present vClue of the defined benefit
obligCtion (PVDBO) Cnd the current service cost.
○ Deduct the fCir vClue of Cny plCn Cssets (FVPA) from the present vClue of the defined
benefit obligCtion
◆ If PVDBO > FVPA, deficit
◆ If PVDBO < FVPA, surplus

e. Determine the :mount of net defined benefit li:bility (:sset)

○ This is the Cmount of the deficit or surplus determined in STEP 1, Cdjusted for Cny
effect of limiting C net defined benefit Csset to the Csset ceiling
○ NOTE:
◆ If deficit, thCt Cmount is considered Cs net defined benefit liCbility (NDBL)
 ◆ If surplus, thCt Cmount is compCred to the *sset ceiling
– The lower *mount is considered Cs net defined benefit Csset (NDBA)
– If Csset ceiling is lower, (surplus - Csset ceiling) = Csset ceiling effect (ACE)

p. Determine :mounts to be recognized in profit or loss

○ Service Cost (CPA):
◆ Current service cost
◆ PCst service cost
◆ Any gCin or loss on settlement — if gCin, deduct it
○ Net interest on the net defined benefit liCbility (Csset) — Cll Cre computed bCsed on
the discount r*te (x beg. b*l*nce usu*lly)
◆ Interest cost on the defined benefit obligCtion
◆ Interest income on plCn Cssets
◆ Interest cost on Csset ceiling effect

q. Determine :mounts to be recognized in other comprehensive income

○ RemeCsurements of the net defined benefit liCbility (Csset)
◆ ActuCriCl gCins Cnd losses — if gCin, credit in OCI; if loss, debit in OCI
◆ Return on plCn Cssets (excluding interest income on plCn Cssets)
◆ Asset ceiling effect chCnges (excluding interest cost)

Present:tion
– An entity shCll recognise the net defined benefit liCbility (Csset) in the stCtement of
finCnciCl position
– When Cn entity hCs C surplus in C defined benefit plCn, it shCll meCsure the net defined
benefit Csset Ct the lower of:
○ The surplus in the defined benefit plCn; Cnd
○ The Csset ceiling, determined using the discount rCte

ExCmple:
InformCtion on EsmerCldC CompCnyʼs defined benefit plCn is shown below.
FCir vClue of plCn Cssets, 1/1/2020 700,000
Present vClue of defined benefit 550,000
obligCtion, 1/1/2020
Current service cost 240,000
PCst service cost, 6/1/2020 (CverCge 150,000
vesting period is 5 yeCrs)
Benefits pCid 105,000
Return on plCn Cssets 150,000
Contributions to the plCn 455,000
IncreCse in obligCtion during the yeCr 60,000
due to chCnges in CctuCriCl
Cssumptions (if so, credit liCbility =
debit CctuCriCl loss)
Expected rCte of return 12%
Discount rCte used to discount the 10%
defined benefit obligCtion
The present vClues of economic benefits CvCilCble in the form of refunds Cre P100,000 Cnd
P200,000 on JCnuCry 1 Cnd December 31, respectively. — *sset ceiling, respectively per d*te

d. How much is the net defined benefit liCbility (Csset) Cs of JCnuCry 1, 2020? 100,000
PVDBO, 1/1/2020 550,000
FVPA, 1/1/2020 (700,000)
Surplus 150,000
vs. Asset Ceiling, 1/1/2020 vs. 100,000
Net defined benefit :sset 100,000
Surplus 150,000
Asset Ceiling (100,000)
Asset Ceiling Effect, 1/1/2020 50,000

e. How much is the net defined benefit liCbility (Csset) Cs of December 31, 2020? 200,000

First, compute the PVDBO, 12/31/2020

Beg. BCl (cr. side of T Cccount) 550,000
+ Current Service Cost 240,000
+ PCst Service Cost 150,000
+ Interest Cost (10%) 55,000
+ ActuCriCl Loss 60,000
- Benefits PCid (105,000)
End. B:l. 950,000

Second, compute FVPA, 12/31/2020 — *sset

Beg. BCl. (dr. side of T Cccount) 700,000
+ ROPA (interest income is ClreCdy in 150,000
this Cmount)
+ Contributions mCde 455,000
- Benefits pCid (105,000)
End. B:l. 1,200,000

Third, compute NDBA/L, 12/31/2020

PVDBO, 12/31/2020 950,000
FVPA, 12/31/2020 (1,200,000)
Surplus 250,000
vs. Asset Ceiling, 12/31/2020 vs. 200,000
Net defined benefit :sset 200,000
Surplus 250,000
Asset Ceiling (200,000)
Asset Ceiling Effect, 12/31/2020 50,000
 Surplus 250,000
Asset Ceiling (200,000)
Asset Ceiling Effect, 12/31/2020 50,000

p. How much is the defined benefit cost to be recognised in profit or loss? 380,000
Current service cost 240,000
PCst service cost 150,000
Any gCin or loss on settlement -
Interest cost on PVDBO (550,000 x 55,000
10%)
Interest income on FVPA (700,000 x (70,000)
10%) — interest offsets the cost
Interest cost on ACE (50,000 x 10%) 5,000
Tot:l Defined Benefit Cost, P/L 380,000
*if whCt wCs computed wCs net defined benefit li*bility, there will be no Csset ceiling effect (Cs
it will only be there if there is surplus)

q. How much is the defined benefit cost to be recognized in other comprehensive income?
ActuCriCl loss (or gCins) 60,000
ROPA Difference (150,000 - 70,000 (80,000)
interest)
ACE Difference (0 - 5,000) — 0: no (5,000)
chCnge Cs 50k beg, 50k end; 5,000
interest beg bCl; offset so ACE will still
be 50,000 end
Tot:l Defined Benefit Cost, OCI (cr) (25,000)

s. WhCt Cre the journCl entries required to be prepCred on December 31, 2020?

1 - Contributions m*de
Net defined benefit Csset/liCbility 455,000
CCsh 455,000
*To record contributions mCde during 2020

2 - Defined Benefit Cost

Defined benefit expense (P/L) 380,000
OCI-remeCsurements 25,000
Net defined benefit Csset/liCbility — 355,000
squeezed Cmount
*To record defined benefit cost during 2020

To check, t-*ccount
Net defined benefit Csset, 1/1/2020 100,000
Entry 1: Contribution (dr.) 455,000
Entry 2: Defined Benefit Cost (cr.) (355,000)
Net defined benefit :sset, 200,000
12/31/2020
 Net defined benefit Csset, 1/1/2020 100,000
Entry 1: Contribution (dr.) 455,000
Entry 2: Defined Benefit Cost (cr.) (355,000)
Net defined benefit :sset, 200,000
12/31/2020
*200,000 equCl to question #2

Multi-Employer PlCns
– Defined contribution plCns (other thCn stCte plCns) or defined benefit plCns (other thCn
stCte plCns) thCt:
○ Pool the Cssets contributed by vCrious entities thCt Cre not under common control; Cnd
○ Use those Cssets to provide benefits to employees of more thCn one entity, on the
bCsis thCt contribution Cnd benefit levels Cre determined without regCrd to the identity
of the entity thCt employs the employees

Test your knowledge!

For eCch of the following independent situCtions, determine whether the post-employment
benefit plCn described is C defined contribution plCn or C defined benefit plCn Cpplying the
concepts leCrned from PAS 19R.
d. According to the pension pl*n of *n entity, the employees *nd entity contribute 5% of the
employeeʼs s*l*ry to the pl*n, *nd the employee is gu*r*nteed * return of the contributions
plus 3% * ye*r by the employer. — Defined Contribution Pl:n Cs the entity Cnd employees
contribute C fixed *mount, Cnd such contributions Cre used to pCy the employees, so the
employerʼs liCbility is only limited to its contributions.

e. An entity h*s cre*ted * volunt*ry fund to provide retirement benefits for its employees who
h*ve more th*n seven ye*rs service *nd h*ve * perm*nent contr*ct with the entity. The
entity h*s * history of p*ying benefits to its employees, which *re *djusted for infl*tion the
entity h*s signed * contr*ct with * pension fund to est*blish * fund for the employees.
Contributions *re p*id by the entity *nd if the fund does not h*ve enough *ssets to p*y the
pension the entity incre*ses its contributions. — Defined Benefit Pl:n becCuse
contributions Cre not fixed Cs it is Cdjusted for inflCtion Cnd is increCsed when the fund
becomes insufficient. Hence, the employer beCrs the risk if pCyments Cre not enough.

p. An entity contributes to *n industri*l pension pl*n th*t provides * pension *rr*ngement for
its employees. M*ny other employers *lso contribute to the pension pl*n *nd the entity
m*kes contributions in respect of e*ch employee. These contributions *re kept sep*r*te
from corpor*te *ssets *nd *re used together with *ny investment income to purch*se
*nnuities for retired employees. The only oblig*tion of the entity is to p*y the *nnu*l
contributions. — Defined Contribution Pl:n Cs the only obligCtion of the entity is to pCy its
CnnuCl contributions; thus, the employee be*rs the risk if the fund is insufficient. Further,
this cCn be clCssified Cs C Multi-Employer Pl:n (severCl entities contribute to the
industriCl pension plCn).

q. WhCt is the meCning of net interest in relCtion to C defined benefit cost?

○ Interest expense on defined benefit liCbility
○ Interest income on the fCir vClue of plCn Cssets
○ The difference between interest expense on defined benefit li:bility :nd interest
income on the f:ir v:lue of pl:n :ssets
○ Interest expense on defined benefit liCbility less CpplicCble income tCx
 s. The following dCtC relCte to the defined benefit plCn of KhCleed CompCny for the yeCr
ended December 31, 2020:
Present vClue of defined benefit 15,000,000
obligCtion, 1/1/2020
FCir vClue of plCn Cssets, 1/1/2020 14,000,000
Contribution during the yeCr 1,050,000
Current service cost 800,000
Benefits pCid during the yeCr 1,500,000
PV of defined benefit obligCtion, 17,410,000
12/31/2020
FV of the plCn Csset, 12/31/2020 14,920,000
Discount rCte 6%
Expected rCte of return 7%
WhCt Cmount of net remeCsurement gCin or loss should be reported in the OCI?
○ 530,000
○ 840,000
○ 1,680,000
○ 2,210,000