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FAR OCAMPO/OCAMPO
FAR.3029-Employee Benefits MAY 2021

DISCUSSION PROBLEMS
1. Employee benefits are c. Actuarial risk (that benefits will be less than
a. All forms of consideration given by an entity in expected) and investment risk (that assets
exchange for service rendered by employees or for invested will be insufficient to meet expected
the termination of employment. benefits) fall, in substance, on the employee.
b. Benefits that are payable after the completion of d. If actuarial or investment experience are worse
employment. than expected, the entity’s obligation may be
c. Benefits that are expected to be settled wholly increased.
before twelve months after the end of the annual
reporting period in which the employees render the 5. Which statement is incorrect regarding accounting for
related service. defined contribution plans?
d. Benefits other than short-term employee benefits, a. Accounting for defined contribution plans is
post-employment benefits and termination straightforward because the reporting entity’s
benefits. obligation for each period is determined by the
amounts to be contributed for that period.
2. Post-employment benefits include b. No actuarial assumptions are required to measure
a. Benefits provided in exchange for the termination the obligation or the expense and there is no
of an employee’s employment. possibility of any actuarial gain or loss.
b. Paid annual leave and paid sick leave. c. The obligations are measured on an undiscounted
c. Long service leave. basis even when they are not expected to be
d. Pensions. settled wholly before twelve months after the end
of the annual reporting period in which the
3. Which statement is incorrect regarding post- employees render the related service.
employment benefit plans? d. An entity shall disclose the amount recognized as
a. Post-employment benefit plans are arrangements an expense for defined contribution plans.
whereby an entity provides post-employment
benefits. 6. Accounting for defined benefit plans is complex. Why?
b. An entity applies PAS 19 to all post-employment a. Because actuarial assumptions are required to
benefit plans whether or not they involve the measure the obligation and the expense and there
establishment of a separate entity to receive is a possibility of actuarial gains and losses.
contributions and to pay benefits. b. Because the obligations are measured on a
c. Post-employment benefit plans are classified as discounted basis because they may be settled
either defined contribution plans or defined benefit many years after the employees render the related
plans, depending on the economic substance of the service.
plan as derived from its principal terms and c. Both a and b.
conditions. d. Neither a nor b.
d. Under defined contribution plans, the entity’s
obligation is to provide the agreed benefits to 7. The components of defined benefit cost include
current and former employees. a. Service cost in profit or loss.
b. Interest (net) on the net defined benefit liability
LECTURE NOTES: (asset) in profit or loss.
c. Remeasurements of the net defined benefit liability
Defined Contribution vs Defined Benefit Plan
(asset) in other comprehensive income.
Defined Contribution Plan Defined Benefit Plan d. All of the above.
Actuarial and investment Actuarial and investment
risks fall to employees risks fall to the entity 8. The deficit or surplus is:
(employer) a. The present value, without deducting any plan
Accounting: Straightforward Accounting: Complex assets, of expected future payments required to
No actuarial assumptions Requires actuarial settle the obligation resulting from employee
assumptions service in the current and prior periods.
No actuarial gains and losses Possibility of actuarial gains b. Assets held by a long-term employee benefit fund
and losses and qualifying insurance policies.
Normally, undiscounted Normally, discounted c. The difference between a and b.
d. The total of a and b.
4. Which of the following is a characteristic of a defined
9. An entity shall use the projected unit credit method to
benefit plan?
a. The entity’s legal or constructive obligation is determine the present value of its defined benefit
obligations and the related current service cost and,
limited to the amount that it agrees to contribute
where applicable, past service cost. The projected unit
to the fund.
credit method is also known as
b. The amount of the post-employment benefits
a. The accrued benefit method pro-rated on service.
received by the employee is determined by the
b. The benefit/years of service method.
amount of contributions paid by an entity to a
c. Both a and b.
post-employment benefit plan or to an insurance
d. Neither a nor b.
company, together with investment returns arising
from the contributions.

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EXCEL PROFESSIONAL SERVICES, INC.

10. The projected unit credit method The entity does not fund its obligation to pay lump-sum
a. Sees each period of service as giving rise to an benefits.
additional unit of benefit entitlement.
b. Measures each unit of benefit entitlement 15. Calculate the amount that the entity would recognize
separately to build up the final obligation. in profit or loss for the year ended 31 December 2020.
c. Both a and b. a. P1,146 c. P1,437
d. Neither a nor b. b. P1,080 d. P1,534

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, 12/31/19
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
11. The defined benefit liability (deficit) at the end of the
second year is 16. 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
12. 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
13. The change in year 2 in the net defined benefit liability 17. 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
14. The amount to be recognized as expense in the second
year is
Use the following information for the next three questions:
a. P196 c. P107
b. P131 d. P 98 Jessie Co. sponsors a defined benefit pension plan. For the
current year ended December 31, the following information
Use the following information for the next three questions: relevant to the plan has been accumulated:
To encourage employees older than 60 years to extend Defined benefit obligation, 1/1 P10,000,000
their employment with the entity, Lamentations Fair value of plan assets, 1/1 9,000,000
Corporation promises its 60-year-old employees a lump- Current service cost 3,000,000
sum benefit equal to 1 per cent of final salary for each Gain on settlement 500,000
year of service they remain employed by the entity after Actual return on plan assets 630,000
their 60th birthday provided they remain in the employ of Increase in defined benefit
Lamentations Corporation until they are 65, at which time, obligation due to changes in
in accordance with local laws, employees are required to actuarial assumptions 800,000
retire. The benefit is payable to the employees on Market yield on high quality
retirement. corporate bonds 6%
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.
At 31 December 2019 the entity made the following 18. Calculate the amount that the entity would recognize
actuarial assumptions: in profit or loss for the year in accordance with the
• Employee A’s salary should increase by 5 per cent revised PAS 19
(compound) each year. a. P2,560,000 c. P2,580,000
• There is a 20 per cent probability that employee A’s b. P2,570,000 d. P2,590,000
employment with the entity will terminate before 1
January 2024. 19. Remeasurements of the net defined benefit liability
• The appropriate discount rate is 10 per cent per year. (asset) exclude
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.

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EXCEL PROFESSIONAL SERVICES, INC.

20. Calculate the amount that the entity would recognize Use the following information for the next five questions.
in other comprehensive income for the year in
At the beginning of the current year, the memorandum
accordance with the revised PAS 19
records of Anne Company’s defined benefit plan showed
a. P710,000 c. P800,000
the following:
b. P790,000 d. P890,000
Fair value of plan assets P 7,500,000
Defined benefit obligation (11,000,000)
SOLUTION GUIDE: Prepaid(accrued) defined benefit exp. (P3,500,000)

SERVICE COST: The entity determined that its current service cost was
- Current P1,000,000 and the interest cost is 10%. The expected
- Past return on plan assets was 12% but the actual return
- Settlement (Non-routine) during the year was 8%. Other related information at the
end of the year:
INTEREST EXPENSE/INCOME, NET Contribution to the plan P1,200,000
- Defined Benefit Obligation (DBO) Benefits paid to retirees 1,500,000
- Plan assets (PA) Decrease in defined benefit obligation
- Asset ceiling effect due to changes in actuarial
assumptions 200,000
REMEASUREMENT:
- Defined Benefit Obligation (DBO) 25. Calculate the amount that the entity would recognize
- Plan assets (PA) in profit or loss for the year.
- Asset ceiling effect a. P1,000,000 c. P1,200,000
(excluding amount in P/L) b. P1,100,000 d. P1,350,000

21. Past service cost arises from 26. Calculate the net amount that the entity would
a. A plan amendment (the introduction or withdrawal recognize in OCI for the year.
of, or changes to, a defined benefit plan) a. P200,000 gain c. P50,000 loss
b. A curtailment (a significant reduction by the entity b. P200,000 loss d. P50,000 gain
in the number of employees covered by a plan)
c. Either a or b 27. Calculate the amount to be recognized in the
d. Neither a nor b statement of financial position at the end of the current
year.
22. New Corporation amends its pension plan on 1/1/20. a. P4,000,000 c. P3,600,000
The following information is available: b. P3,650,000 d. P3,500,000

1/1/20 before 1/1/20 after 28. The fair value of plan assets at the end of the current
amendment amendment year is
Accumulated benefit a. P8,700,000 c. P7,950,000
obligation P 950,000 P1,425,000 b. P8,250,000 d. P7,800,000
Projected benefit
obligation 1,300,000 1,900,000 29. The defined benefit obligation at the end of the current
The past service cost as a result of this amendment is year is
a. P950,000 c. P475,000 a. P11,800,000 c. P11,400,000
b. P600,000 d. P125,000 b. P11,600,000 d. P10,500,000

23. In accordance with the revised PAS 19, the asset SOLUTION GUIDE:
ceiling includes?
a. Unrecognized actuarial losses SERVICE COST:
b. Unrecognized past service cost - Current
c. Present value of any economic benefits available in - Past
the form of refunds from the plan or reductions in - Settlement (Non-routine)
future contributions to the plan.
d. All of the above. INTEREST EXPENSE/INCOME, NET
- Defined Benefit Obligation (DBO)
24. An entity’s defined benefit plan has the following - Plan assets (PA)
information: - Asset ceiling effect
12/31/19 12/31/20
Fair value of plan assets P10 million P12 million REMEASUREMENT:
Defined benefit obligation 8 million 9 million - Defined Benefit Obligation (DBO)
Discount rate 10% 10% - Plan assets (PA)
Present value of available - Asset ceiling effect
future refunds and (excluding amount in P/L)
reduction in future
contributions 1.6 million 2 million
In relation to the asset ceiling, the amount that the
entity would recognize in other comprehensive income
for the year 2020 is
a. P1,000,000 c. P560,000
b. P 600,000 d. P400,000

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EXCEL PROFESSIONAL SERVICES, INC.

Use the following information for the next two questions. d. PAS 19 requires disclosures about short-term
employee benefits for key management personnel.
The following information relates to the defined benefit
pension plan for the Tebboune Company for the year
36. An entity has 100 employees, who are each entitled to
ended Dec. 31, 2020.
five working days of paid sick leave for each year.
Defined benefit obligation, Jan. 1 P8,700,000 Unused sick leave may be carried forward for one
Defined benefit obligation, Dec. 31 9,700,000 calendar year. Sick leave is taken first out of the
Fair value of plan assets, Jan. 1 8,500,000 current year’s entitlement and then out of any balance
Fair value of plan assets, Dec. 31 9,400,000 brought forward from the previous year. At 31
Current service cost 1,300,000 December 2020 the average unused entitlement is two
Employer contributions 1,500,000 days per employee. The entity expects, on the basis
Benefits paid to retirees 850,000 of experience that is expected to continue, that 92
Discount rate 5% employees will take no more than five days of paid sick
leave in 2021 and that the remaining eight employees
30. The actual return on plan asset is will take an average of six and a half days each. At
a. P600,000 c. P425,000 December 31, 2020, the entity should recognize a
b. P595,000 d. P250,000 liability for unused sick leave equal to
a. 200 days c. 12 days
31. The net amount to be recognized in 2020 OCI is
b. 16 days d. 8 days
a. P290,000 c. P230,000
b. P284,000 d. P 60,000
37. JR Company employs 5 people. Each employee is
entitled to 2 weeks paid vacation every year the
32. You gathered the following information related to
employee works for the company. The conditions of
Ashley Company’s the defined benefit plan for the
the paid vacation are (a) for each full year of work, an
current year ended December 31:
employee will receive two weeks of paid vacation (no
• Fair value of plan assets: P2,100 million at January
vacation accrues for a portion of a year), (b) each
1, and P2,300 million at December 31
employee will receive the same pay for vacation time
• Present value of obligation to provide benefits:
as the regular pay-in the year taken, and (c) unused
P2,200 million at January 1, and P2,600 million at
vacation pay can be carried forward.
December 31
Cumulative
• Contributions paid to the fund: P80 million
Starting Vacation Taken As Weekly
• Benefits paid to retired employees: P50 million
Employee Date of 12/31/2020 Salary
The defined benefit cost for the year is A 12/1/2013 10 weeks P5,000
a. P120 million c. P250 million B 3/1/2018 2 weeks 4,000
b. P200 million d. P280 million C 8/1/2019 None 3,500
D 12/1/2018 3 weeks 3,000
33. PAS 19 specifies
a. That an entity should distinguish between current E 3/31/2020 None 2,500
and non-current portions of assets and liabilities
arising from post-employment benefits. JR Company should report liability for vacation pay on
b. How an entity should present service cost and net December 31, 2020 at
interest on the net defined benefit liability (asset). a. P38,000 c. P45,000
c. Both a and b. b. P40,500 d. P53,500
d. Neither a nor b.
SOLUTION GUIDE:
34. An entity shall disclose information that:
a. Explains the characteristics of its defined benefit Emp. Earned Used Unused Salary Liability
plans and risks associated with them. A 10 5,000
b. Identifies and explains the amounts in its financial
statements arising from its defined benefit plans. B 2 4,000
c. Describes how its defined benefit plans may affect
C - 3,500
the amount, timing and uncertainty of the entity’s
future cash flows. D 3 3,000
d. All of the above.
E - 2,500
35. Which statement is incorrect regarding short-term
Total
employee benefits?
a. Short-term employee benefits are employee
benefits (other than termination benefits) that are
expected to be settled wholly before twelve 38. PAS 19 requires a simplified method of accounting for
months after the end of the annual reporting other long-term employee benefits that is the same as
period in which the employees render the related the accounting for post-employment benefits, except
service. for
b. Short-term employee benefits in the form of a. Current service
accumulating paid absences are recognized when b. Past service cost
the employees render service that increases their c. Net interest
entitlement to future paid absences. d. Remeasurements
c. An entity shall measure the expected cost of
accumulating paid absences as the additional
amount that the entity expects to pay as a result
of the unused entitlement that has accumulated at
the end of the reporting period.

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EXCEL PROFESSIONAL SERVICES, INC.
39. An entity provides 30 days of accumulating annual
leave to all of its employees. The annual leave will
continue to rollover for a period of 3 years if not taken
in the first year. However, leave rolled-over to
subsequent periods is not paid out in the event of
employment termination at the request of the
employee.
At the end of the entity’s annual reporting period (31
December 2020), the entity notes the following:
• 2,000 employees have 16 days of 2020 annual
leave on average per employee remaining
• Based on historical trend, 50% (8 days) of the
outstanding leave is expected to be taken in the
next twelve months and 25% (4 days) in each of
the subsequent two years (4 days) in each of the
subsequent two years
• Employees’ average salary is P70,000, with 10%
increases expected per annum
• Turnover is expected to be 20% per annum
• Discount rate is 5%
• Average of 260 working days per annum
The accrued benefit obligation at Dec. 31, 2020 is
a. P11,467,077 c. P8,658,117
b. P 9,476,923 d. P7,988,818
SOLUTION:
40. Termination benefits are employee benefits provided in
exchange for the termination of an employee’s
employment as a result of:
a. An entity’s decision to terminate an employee’s
employment before the normal retirement date.
b. An employee’s decision to accept an offer of
benefits in exchange for the termination of
employment.
c. Either a or b
d. Neither a nor b
41. An entity shall recognize a liability and expense for
termination benefits
a. When the entity can no longer withdraw the offer
of those benefits.
b. When the entity recognizes costs for a
restructuring that is within the scope of PAS 37
and involves the payment of termination benefits.
c. At the earlier of a and b.
d. At the later of a and b.
42. For termination benefits payable as a result of an
employee’s decision to accept an offer of benefits in
exchange for the termination of employment, the time
when an entity can no longer withdraw the offer of
termination benefits:
a. When the employee accepts the offer.
b. When a restriction (eg a legal, regulatory or
contractual requirement or other restriction) on the
entity’s ability to withdraw the offer takes effect.
c. At the earlier of a and b.
d. At the later of a and b.
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43. On September 1, 2020, D. Lion Corp. offered special
termination benefits to employees who had reached
the early retirement age specified in the company’s
pension plan. The termination benefits consisted of
lump-sum and periodic future payments. Additionally,
the employees accepting the company offer receive the
usual early retirement pension benefits. The offer
expired on November 30, 2020. Actual or reasonably
estimated amounts at December 31, 2020 relating to
the employees accepting the offer are as follows:
• Lump-sum payments totaling P475,000 were made
on January 1, 2021.
• Periodic payments of P60,000 annually for 3 years
will begin January 1, 2022. The present value at
December 31, 2020 of these payments was
P155,000.
• Reduction of accrued pension costs at December
31, 2020 for the terminating employees was
P45,000.
At December 31, 2020, D. Lion should report a total
liability for special termination benefits of
a. P475,000 c. P630,000
b. P585,000 d. P655,000
44. An entity announces its decision to close its factory
located in Country A and terminate all 200 employees
as a result of the economic downturn.
The entity will pay a P200,000 per employee benefit
upon termination. However, to ensure the wind-up of
the factory occurs smoothly and all remaining
customer orders are completed, the entity needs to
retain at least 20% of employees until closure of the
factory in eight months.
As a result, the entity announced in a corporate memo
to all employees that employees that agree to stay
until the closing of the factory will receive a P600,000
payment at the end of the eight months (in addition to
receiving their current wage throughout that period of
service) instead of the P200,000. Based on this offer
and the current market conditions, the entity expects
to retain 50 employees until the date the factory is
closed.
The amount to be recognized as termination benefits is
a. P60 million c. P30 million
b. P40 million d. P20 million
45. How shall an entity measure and recognize subsequent
changes in termination benefits?
a. If the termination benefits are an enhancement to
post-employment benefits, the entity shall apply
the requirements for post-employment benefits.
b. If the termination benefits are expected to be
settled wholly before twelve months after the end
of the annual reporting period in which the
termination benefit is recognized, the entity shall
apply the requirements for short-term employee
benefits.
c. If the termination benefits are not expected to be
settled wholly before twelve months after the end
of the annual reporting period, the entity shall
apply the requirements for other long-term
employee benefits.
d. All of the above.
46. PAS 19 specifies required disclosures for
a. Termination benefits
b. Other long-term employee benefits
c. Post-employment benefits
d. All of the above
J - end of FAR.3029 - J
FAR.3029