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FAR
Employee Benefits (Pension)

DISCUSSION PROBLEMS
1. Employee benefits are
a. All forms of consideration given by an entity in
exchange for service rendered by employees or for
the termination of employment.
b. Benefits that are payable after the completion of
employment.
c. Benefits that are expected to be settled wholly
before twelve months after the end of the annual
reporting period in which the employees render the
related service.
d. Benefits other than short-term employee benefits,
post-employment benefits and termination
benefits.
2. Post-employment benefits include
a. Benefits provided in exchange for the termination
of an employee’s employment.
b. Paid annual leave and paid sick leave.
c. Long service leave.
d. Pensions.
3. Which statement is incorrect regarding post-
employment benefit plans?
a. Post-employment benefit plans are arrangements
whereby an entity provides post-employment
benefits.
b. An entity applies PAS 19 to all post-employment
benefit plans whether or not they involve the
establishment of a separate entity to receive
contributions and to pay benefits.
c. Post-employment benefit plans are classified as
either defined contribution plans or defined benefit
plans, depending on the economic substance of the
plan as derived from its principal terms and
conditions.
d. None of the above.
4. Which of the following is a characteristic of a defined
benefit plan?
a. The entity’s legal or constructive obligation is
limited to the amount that it agrees to contribute
to the fund.
b. The amount of the post-employment benefits
received by the employee is determined by the
amount of contributions paid by an entity to a
post-employment benefit plan or to an insurance
company, together with investment returns arising
from the contributions.
c. Actuarial risk (that benefits will be less than
expected) and investment risk (that assets
invested will be insufficient to meet expected
benefits) fall, in substance, on the employee.
d. If actuarial or investment experience are worse
than expected, the entity’s obligation may be
increased.
5. The components of defined benefit cost include
a. Service cost in profit or loss.
b. Interest (net) on the net defined benefit liability
(asset) in profit or loss.
c. Remeasurements of the net defined benefit liability
(asset) in other comprehensive income.
d. All of the above.
6. The deficit or surplus is:
a. The present value, without deducting any plan
assets, of expected future payments required to
settle the obligation resulting from employee
service in the current and prior periods.
b. Assets held by a long-term employee benefit fund
and qualifying insurance policies.
c. The difference between a and b.
d. The total of a and b.

7. An entity shall use the projected unit credit method to

LECTURE NOTES:
Defined Contribution vs Defined Benefit Plan
Defined Contribution Plan
Actuarial and investment
risks fall to employees
Accounting: Straightforward
No actuarial assumptions
No actuarial gains and losses
Normally, undiscounted
Defined Benefit Plan
Actuarial and investment
risks fall to the entity
(employer)
Accounting: Complex
Requires actuarial
assumptions
Possibility of actuarial gains
and losses
Normally, discounted
determine the present value of its defined benefit
obligations and the related current service cost and,
where applicable, past service cost. The projected unit
credit method is also known as
a. The accrued benefit method pro-rated on service.
b. The benefit/years of service method.
c. Both a and b.
d. Neither a nor b.
8. The projected unit credit method
a. Sees each period of service as giving rise to an
additional unit of benefit entitlement.
b. Measures each unit of benefit entitlement
separately to build up the final obligation.
c. Both a and b.
d. Neither a nor b.

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Use the following information for the next four questions SOLUTION:
A lump sum benefit is payable on termination of service Current service cost
and equal to 1 per cent of final salary for each year of (P105,000 x 1.5209 x .01 x .9 x .7513) P1,080
service. The salary in year 1 is P10,000 and is assumed to Interest cost
increase at 7 per cent (compound) each year. The discount DBO, 12/31/18
rate used is 10 per cent per year. The entity does not fund (P100,000 x 1.2155 x .01 x .8 x .6830) P 664
its obligation to pay lump-sum benefits. The employee is x Discount rate .1
expected to leave at the end of year 5. P 66
Total P1,146
9. The defined benefit liability (deficit) at the end of the
second year is 14. Actuarial gains and losses are changes in the present
a. P275 c. P196 value of the defined benefit obligation resulting from:
b. P262 d. P187 a. Experience adjustments (the effects of differences
between the previous actuarial assumptions and
10. The increase in the present value of the defined benefit what has actually occurred).
obligation resulting from employee service in year 2 b. The effects of changes in actuarial assumptions.
(current service cost) is c. Both a and b
a. P196 c. P98 d. Neither a nor b
b. P131 d. P89
11. The change in year 2 in the net defined benefit liability 15. Calculate the amount that the entity would recognize
that arises from the passage of time (interest cost) is in other comprehensive income for the year ended 31
a. P131 c. P9 December 2020.
b. P 98 d. Nil a. P1,014 c. P350
b. P1,080 d. Nil
12. The amount to be recognized as expense in the second
year is
a. P196 c. P107 Use the following information for the next three questions:
b. P131 d. P 98
Jessie Co. sponsors a defined benefit pension plan. For the
current year ended December 31, the following information
relevant to the plan has been accumulated:
Use the following information for the next three questions:
Defined benefit obligation, 1/1 P10,000,000
To encourage employees older than 60 years to extend Fair value of plan assets, 1/1 9,000,000
their employment with the entity, Lamentations Current service cost 3,000,000
Corporation promises its 60-year-old employees a lump- Gain on settlement 500,000
sum benefit equal to 1 per cent of final salary for each Actual return on plan assets 630,000
year of service they remain employed by the entity after Increase in defined benefit
their 60th birthday provided they remain in the employ of obligation due to changes in
Lamentations Corporation until they are 65, at which time, actuarial assumptions 800,000
in accordance with local laws, employees are required to Market yield on high quality
retire. The benefit is payable to the employees on corporate bonds 6%
retirement. Yield on bonds issued by the entity 8%
Employee A’s 60th birthday is on 1 January 2019. Her Expected return on plan assets 9%
salary for the year ended 31 December 2019 is P100,000.
16. Calculate the amount that the entity would recognize
At 31 December 2019 the entity made the following in profit or loss for the year in accordance with the
actuarial assumptions: revised PAS 19
• Employee A’s salary should increase by 5 per cent a. P2,560,000 c. P2,580,000
(compound) each year. b. P2,570,000 d. P2,590,000
• There is a 20 per cent probability that employee A’s
employment with the entity will terminate before 1 17. Remeasurements of the net defined benefit liability
January 2024. (asset) exclude
• The appropriate discount rate is 10 per cent per year. a. Actuarial gains and losses.
Employee A’s salary for 2020 is P105,000. b. The return on plan assets excluding amounts
included in net interest on the net defined benefit
At 31 December 2020 the entity revised its actuarial liability (asset).
assumptions as follows: c. Any change in the effect of the asset ceiling,
• Employee A’s salary should increase by 15 per cent excluding amounts included in net interest on the
(compound) each year. net defined benefit liability (asset).
• There is a 10 per cent probability that employee A’s d. The difference between the present value of the
employment with the entity will terminate before defined benefit obligation being settled, as
reaching retirement date of 1 January 2024. determined on the date of settlement and the
• The appropriate discount rate remains 10 per cent per settlement price, including any plan assets
year. transferred and any payments made directly by the
entity in connection with the settlement
The entity does not fund its obligation to pay lump-sum
benefits. (Round off future and present value factors to 18. Calculate the amount that the entity would recognize
four decimal places) in other comprehensive income for the year in
accordance with the revised PAS 19
13. Calculate the amount that the entity would recognize a. P710,000 c. P800,000
in profit or loss for the year ended 31 December 2020. b. P790,000 d. P890,000
a. P1,146 c. P1,437
b. P1,080 d. P1,534

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SOLUTION GUIDE: Use the following information for the next five questions:
At the beginning of the current year, the memorandum
SERVICE COST:
records of Anne Company’s defined benefit plan showed
- Current
the following:
- Past
- Settlement (Non-routine) Fair value of plan assets P 7,500,000
Defined benefit obligation (11,000,000)
INTEREST EXPENSE/INCOME, NET Prepaid(accrued) pension expense (P3,500,000)
- Defined Benefit Obligation (DBO)
- Plan assets (PA) The entity determined that its current service cost was
- Asset ceiling effect P1,000,000 and the interest cost is 10%. The expected
return on plan assets was 12% but the actual return
REMEASUREMENT: during the year was 8%. Other related information at the
- Defined Benefit Obligation (DBO) end of the year:
- Plan assets (PA) Contribution to the plan P1,200,000
- Asset ceiling effect Benefits paid to retirees 1,500,000
(excluding amount in P/L) Decrease in defined benefit obligation
due to changes in actuarial
assumptions 200,000
19. Past service cost arises from
a. A plan amendment (the introduction or withdrawal 23. Calculate the amount that the entity would recognize
of, or changes to, a defined benefit plan) in profit or loss for the year in accordance with the
b. A curtailment (a significant reduction by the entity revised PAS 19
in the number of employees covered by a plan) a. P1,000,000 c. P1,200,000
c. Either a or b b. P1,100,000 d. P1,350,000
d. Neither a nor b 24. Calculate the net amount that the entity would
recognize in OCI for the year in accordance with the
20. New Corporation amends its pension plan on 1/1/20. revised PAS 19
The following information is available: a. P200,000 gain c. P50,000 loss
1/1/20 before 1/1/20 after b. P200,000 loss d. P50,000 gain
amendment amendment
Accumulated benefit 25. Calculate the amount to be recognized in the
obligation P 950,000 P1,425,000 statement of financial position at the end of the current
Projected benefit year in accordance with the revised PAS 19
obligation 1,300,000 1,900,000 a. P4,000,000 c. P3,600,000
b. P3,650,000 d. P3,500,000
The past service cost as a result of this amendment is
a. P950,000 c. P475,000 26. The fair value of plan assets at the end of the current
b. P600,000 d. P125,000 year is
a. P8,700,000 c. P7,950,000
21. In accordance with the revised PAS 19, the asset b. P8,250,000 d. P7,800,000
ceiling includes?
a. Unrecognized actuarial losses 27. The defined benefit obligation at the end of the current
b. Unrecognized past service cost year is
c. Present value of any economic benefits available in a. P11,800,000 c. P11,400,000
the form of refunds from the plan or reductions in b. P11,600,000 d. P10,500,000
future contributions to the plan.
d. All of the above.
SOLUTION GUIDE:
22. An entity’s defined benefit plan has the following
information: SERVICE COST:
12/31/19 12/31/20 - Current
Fair value of plan assets P10 million P12 million - Past
Defined benefit obligation 8 million 9 million - Settlement (Non-routine)
Discount rate 10% 10%
Present value of available INTEREST EXPENSE/INCOME, NET
future refunds and - Defined Benefit Obligation (DBO)
reduction in future - Plan assets (PA)
contributions 1.6 million 2 million - Asset ceiling effect
In relation to the asset ceiling, the amount that the
REMEASUREMENT:
entity would recognize in other comprehensive income
- Defined Benefit Obligation (DBO)
for the year 2020 is
- Plan assets (PA)
a. P1,000,000 c. P560,000
- Asset ceiling effect
b. P 600,000 d. P400,000
(excluding amount in P/L)

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28. The following information relates to the defined benefit 30. PAS 19 specifies
pension plan for the Nicola Company for the year a. That an entity should distinguish between current
ending December 31, 2020. and non-current portions of assets and liabilities
Defined benefit obligation, January 1 P4,600,000 arising from post-employment benefits.
Defined benefit obligation, Dec. 31 4,729,000 b. How an entity should present service cost and net
Fair value of plan assets, January 1 5,035,000 interest on the net defined benefit liability (asset).
Fair value of plan assets, Dec. 31 5,565,000 c. Both a and b.
Expected return on plan assets 450,000 d. Neither a nor b.
Employer contributions 425,000
Benefits paid to retirees 390,000 31. An entity shall disclose information that:
Settlement rate 10% a. Explains the characteristics of its defined benefit
plans and risks associated with them.
Service cost for the year would be b. Identifies and explains the amounts in its financial
a. P59,000 c. P129,000 statements arising from its defined benefit plans.
b. P94,000 d. P390,000 c. Describes how its defined benefit plans may affect
the amount, timing and uncertainty of the entity’s
future cash flows.
29. You gathered the following information related to d. All of the above.
Ashley Company’s the defined benefit plan for the
current year ended December 31:
• Fair value of plan assets: P2,100 million at January
1, and P2,300 million at December 31
• Present value of obligation to provide benefits:
P2,200 million at January 1, and P2,600 million at
December 31
• Contributions paid to the fund: P80 million
• Benefits paid to retired employees: P50 million
The defined benefit cost for the year is
J - end of FAR.2832 - J
a. P120 million c. P250 million
b. P200 million d. P280 million

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