Defined Benefit Plan-Lecture

DEFINED BENEFIT PLAN-WORKSHEET APPROACH
The benefit plan shall be viewed as a subentity separate and distinct from the primary entity,
which is the employer entity.
The subentity maintains information that does not appear

Fair Value of Plan Assets (FVPA)
The fair value of the plan assets is the source of fund set aside in meeting future benefit
payments. FVPA is analogous to an off-statement of financial position asset with a debit
balance.
Projected Benefit Obligation (PBO) of Defined Benefit Obligation(DBO)

The present value of expected future payments required to settle the obligation arising
from employee service in the current and prior periods. PBO is analogous to an off-
statement of financial position liability with a credit balance.
FVPA and PBO are kept only in the memorandum records of the sub-entity.
The “Prepaid/Accrued benefit cost” is the item that appears on the financial statement of the
employer entity.
FVPA>PBO – the plan is overfunded and therefore there is a prepaid benefit cost, a
noncurrent asset.
FVPA<PBO – the plan is underfunded, and therefore, there is an accrued benefit cost, a
noncurrent liability.
The “Prepaid/Accrued benefit cost” account is the balancing figure.
This account will build up and it may have debit or credit balance at the end of reporting period.
If the account has a debit balance, it is classified as noncurrent asset presented as Prepaid
benefit cost. Otherwise, if the account has credit balance, it is classified as non current liabililty
presented as accrued benefit cost.
PAS 19
Past service cost/unamortized service cost – charge outright to employees benefit
expense
Unrecognized actuarial gain/loss – charge outright to Remeasurement-OCI
WORKSHEET
General Journal Memorandum
Remeasurement Benefit
OCI Expense Cash FVPA PBO
Balance – January 1 xxx (xxx)
1. Current service cost xxx (xxx)
2. Past service cost xxx (xxx)
3. Interest expense on PBO xxx (xxx)
4. Interest income on FVPA (xxx) xxx
5. Contribution to the plan (xxx) xxx
6. Benefits paid (xxx) xxx
7. Actuarial loss on PBO xxx (xxx)
8. Remeasurement gain on
plan assets (xxx) xxx
9. Settlement gain (xxx) (xxx) xxx
10. Interest expense on
effect of asset selling xxx (xxx)
11. Remeasurement loss on
asset ceiling xxx (xxx)
12. Remeaurement gain on
asset ceiling (xxx) xxx
Balances- December 31 xxx** xxx* (xxx)*** xxx (xxx)
Journal entry (recorded in company’s book)

Employees benefit expense* xxx
Net remeasurement loss-OCI** xxx
Cash*** xxx
Prepaid/Accrued benefit cost
Remeasurement OCI xxx
+ Benefit expense xxx
- Cash ( xxx)
-----
Prepaid/Accrued benefit cost xxx
===
Computations:
Interest expense on PBO = PBO, beginning x Discount rate or settlement

iscount rate
Interest Income on FVPA = FVPA, beginning x Discount rate or expected return

on plan assets
Remeasurement gain on
Plan Assets = Actual Return on Plan Assets –
Interest Income on FVPA
Settlement gain = Present value of defined benefit obligation settled –

Settlement price
Effect on Asset ceiling, beg = Prepaid/Accrued benefit cost, beg – Asset

ceiling, beg
Effect on Asset ceiling, end = Prepaid/Accrued benefit cost, end – Asset
ceiling, end
Interest expense on
Asset Selling = Effect on asset ceiling, beg x discount rate
Effect on asset ceiling, Dec 31 xxx

Effect on asset ceiling, Jan 1 xxx
-----
Total change in the effect of asset ceiling xxx
Interest expense on effect of asset ceiling
On January 1 ( xxx)
-----
Remeasurement gain/loss on asset ceiling xxx
==
Reconciliation:
Prepaid/Accrued benefit Cost, beginning xxx

Debit or Credit Adjustmen- Prepaid/Accrued benefit
cost during the year xxx
-----------
Prepaid/Accrued benefit cost-Dec 31 xxx
======
FVPA, ending xxx

PBO, ending xxx
------------
Prepaid/Accrued benefit cost-Dec 31 xxx
========
Working Paper Entries/Worksheet Journal Entries ( Not Recorded in Company’s Books)
1. Employee benefit expense xxx

Projected benefit obligation xxx
To record the current service cost.
2. Employee benefit expense xxx

To record past service cost,
3. Employees benefit expense xxx
To record the interest expense on PBO.
4. Fair value of plan assets xxx

Employees benefit expense xxx
To record interest income on FVPA.

Cash xxx
To record contribution to the plan.
6. Projected benefit obligation xxx

Fair value of plan assets xxx
To record benefits paid.
7. Remeasurement loss-OCI xxx

To record actuarial loss on PBO.

Remeasurement gain-OCI xxx
To record remeasurement gain on OCI.
9. Projected benefit obligation xxx

Employees benefit expense xxx
To record settlement gain on benefit obligation.
10. Employees benefit expense xxx

Fair value of plan asset xxx
To record interest expense on effect of asset
ceiling.
11. Remeasurement loss on asset ceiling xxx

To record remeasurement loss on asset ceiling

Remeasurement gain on asset ceiling xxx
To record remeasurement gain on asset ceiling.
PAS 19R, paragraph 8, provides that any change in the effect of Assets ceiling, excluding
interest on the effect the effect of the asset ceiling is a remeasurement to be recognized
through other comprehensive income.
Paragraph 126 provides that the interest on the effect of the asset ceiling is part of the total
change in the effect of the asset ceiling.
Prepaid/Accrued benefit cost, Dec 31 xxx

Asset ceiling, Dec 31 xxx
------------
Effect of asset ceiling, Dec 31 xxx
=======
Effect on asset ceiling, ending xxx

Effect on asset ceiling, beginning xxx
-----------
Total Change in the effect of asset ceiling xxx
======
Effect of asset ceiling, beginning xxx

X Discount rate 10%
------------
Interest expense on effect of asset ceiling xxx**
=======
** Part of Employees benefit expense
Total change in the effect of asset ceiling xxx
-interest expense on effect of asset ceiling on
January 1 ( xxx)
--------------
Remeasurement loss on asset ceiling xxx***
========
*** Part of Net remeasurement gain/loss-OCI
Remeassurement gain/loss on plan assets xxx

Actuarial gain/loss due to decrease or increase in PBO xxx
Remeasurement gain/loss on the change of asset ceiling xxx
------------
Net remeasurement gain/loss-OCI xxx
=======
Gain-positive; Loss-negative
ILLUSTRATION A
On January 1, 2019, the memorandum records of a defined benefit plan showed the following:
FVPA Php 8,000,000
PBO 11,000,000
-------------------------
Prepaid/Accrued benefit cost (Php 3,000,000)
===============
During the current year, the following transactions are gathered:
Current service cost Php 1,600,000
Actual return on plan assets 600,000
Contribution to the plan 1,200,000
Settlements price of defined benefit obligation 900,000
Present value of defined benefit obligation settled 1,000,000
Discount rate 4%
QUESTIONS:
1. Determine the employee benefit expense for the current year.
2. Determine the “remeasurement” on December 31, 2019 to be recognized as component of
other comprehensive income.
3. Prepare journal entry of the prepaid/accrued benefit cost on December 31, 2019.
4. Reconcile the general ledger of the entity with the memorandum ledger.
Suggested Answer with Computation
Worksheet
Balance – January 1 8,000,000 (11,000,000)
1. Current service cost 1,600,000 (1,600,000)
2. Interest expense on PBO 440,000 (440,000)
3. Interest income on FVPA (320,000) 320,000
4. Contribution to the plan (1,200,000) 1,200,000
5. Benefits paid (1,000,000) 1,000,000
plan assets (280,000) 280,000
7. Settlement gain (100,000) (900,000) 1,000,000
Balances- December 31 (280,000) 1,620,000 (1,200,000) 7,900,000 (11,040,000)
(1)
Computations:
Interest expense on PBO = 11,000,000 x 4%

= 440,000
Interest Income on FVPA = 8,000,000 x 4%

= 320,000
Plan Assets = 600,000 – 320,000
= 280,000 (2)
Settlement gain = 1,000,000 – 900,000

= 100,000
Prepaid /Accrued Benefit
Cost, Jan 1 = 8,000,000-11,000,000
= 3,000,000 (underfunded, noncurrent liability)
(3) Journal entry
Employees benefit expense 1,620,000
Net remeasurement gain-OCI 280,000
Cash 1,200,000
140,000
(5) Reconciliation of the general ledger with memorandum ledger
General ledger
Prepaid/ Accrued benefit Cost, January 1 3,000,000
Credit Adjustment- Prepaid/Accrued benefit cost during the year 140,000
---------------
Prepaid/Accrued benefit cost-Dec 31 3,140,000 (4)
=========
Memorandum ledger
FVPA, December 31 7,900,000
PBO, December 31 11,040,000
----------------
Prepaid/Accrued benefit cost-Dec 31 3,140,000
========
ILLUSTRATION 2
On January 1, 2019, Mari Company provided the following data in connections with defined
benefit plan:
FVPA Php 6,700,000
PBO 7,600.000
The accountant revealed the following information for the current year:
Past service cost 300,000
Discount rate 10%
Benefits paid to retirees 800,000
Required:
2. Determine the “remeasurement” on December 31, 2019 to be recognized as component of
other comprehensive income.
3. Prepare journal entry to record the employee benefit expense.
4. Compute the balance of Prepaid/Accrued benefit cost on December 31, 2019.
5. Reconcile the general ledger of the entity with the memorandum ledger.
Suggested Answer with computation
Worksheet
Balance – January 1 6,700,000 (7,600,000)
2. Past service cost 300,000 (300,000)
6. Benefits paid (800,000) 800,000
plan assets 170,000 (170,000)
Balances- December 31 170,000 1,840,000 (1,500,000) 7,900,000 9,310,000
(1)
Computations:
= 760,000

= 670,000
Remeasurement loss on
Plan Assets = 500,000 – 670,000
= 170,000 (2)
Prepaid/Accrued benefit
cost, Jan 1 = 6,700,000-7,600,000
= 900,000 (underfunded, noncurrent liability)
3. Journal entry
Net remeasurement loss-OCI 170,000
Cash 1,500,000
Prepaid/Accrued benefit cost 510,000
5. Reconciliation
Prepaid/Accrued benefit Cost, Jan 1 900,000

cost during the year 510,000
---------------
Prepaid/Accrued benefit cost-Dec 31 1,410,000 (4)
=========
FVPA, ending 7,900,000

PBO, ending 9,310,000
----------------
==========
ILLUSTRATION 3
Pau Company provided the following information concerning defined benefit plan on January 1,
2019 prior to adoption of PAS 19R:
Debit Credit
Fair value of plan assets Php 4,750,000
Unamortized past service cost 1,250,000
Projected benefit obligation Php 5,500,000
Unrecognized actuarial gain 850,000
The transactions fro the current year relating to the defined benefit plan are as follows:
Current service cost Php 925,000
Discount rate 6%
Increase in projected benefit obligation
due to changes in actuarial assumptions 150,000
Effective January 1, 2019, the entity has applied the provisions of PAS 19R in relation to the
defined benefit plan.
Required:
1. Prepare journal entry to recognize the transitional effect of Adopting PAS 19R.
3. Compute the “remeasurment” related to the defined benefit plan.
5. Compute the prepaid/accrued benefit cost on December 31, 2019.
6. Reconcile the general ledger account with the memorandum record.
Worksheet
Balance – January 1 , 4,750,000 (5,500,000)
1. Current service cost 925,000 (925,000)
2. Unamortized past service
cost 1,250,000 (1,250,000)
6. Benefits paid (995,000) 995,000
7. Unrecognized actuarial
gain (850,000) 850,000
8. Actuarial loss on PBO 150,000 (150,000)
plan assets (200,000) 200,000
Balances- December 31 (900,000) 2,169,000 (1,350,000) 5,590,000 6,259,000
(3) (2)
Journal entry
1. Retained earnings 1,250,000
Unrecognized actuarial gain 850,000
4. Employees benefit expense 919,000

Net remeasurement loss-OCI 50,000
Cash 1,350,000
Computations:
Interest expense on PBO = (5,500,000 – 850,000+1,250,000) x 6%

= 354,000

= 285,000
Plan Assets = 485,000 – 285,000
= 200,000
FVPA, Jan 1 4,750,000

Adjusted PBO, Jan 1 ( 5,500,000-850,000+1,250,000) 5,900,000
--------------
Adjusted Prepaid/Accrued Benefit Cost, Jan 1 1,150,000 (underfunded,
Noncurrent liability)
6.Reconciliation
General ledger
Prepaid/Accrued benefit Cost, beginning (Unadjusted) 750,000
Credit Adjustment- Prepaid/Accrued benefit

cost, beg balance 400,000
Debit Adjustment-Prepaid/Accrued benefit
Cost, current period ( 481,000)
----------------
Prepaid/Accrued benefit cost-Dec 31 669,000 (5)
========
OR
Prepaid/Accrued benefit cost, Jan 1 (Adjusted) 1,150,000
Debit Adjustment-Current period ( 481,000)
------------------
Prepaid/Accrued benefit cost-Dec 31 669,000
===========
Memorandum ledger
FVPA, Dec 31 5,590,000
PBO, Dec 31 6,259,000
--------------
========
ILLUSTRATION 4
On January 1, 2019, Camil Company provided the following information in relation to a defined
benefit plan:
Projected benefit obligation 5,000,000
-------------------------
Prepaid/Accrued benefit cost-surplus 1,000,000
Asset ceiling 700,000
--------------------------
Effect on asset ceiling 300,000
===============
During the current year, the following data are gathered:

Decrease in projected benefit obligation
Due to change in actuarial assumptions 500,000
Asset ceiling on December 31, 2019 1,200,000
Discount rate 10%
Required:
1. Determine the fair value of plan assets on December 31, 2019.
2. Determine the projected benefit obligation on December 31, 2019.
3. Determine the effect of asset ceiling on December 31, 2019.
4. Compute the employee benefit expense for the current year.
5. Compute the “remeasurement” on December 31, 2109.
7. Reconcile the prepaid/accrued benefit cost account.
WORKSHEET
Remeasur Benefit
ement OCI Expense Cash FVPA PBO
Balance – January 1 6,000,000 (5,000,000)
1. Current service cost
700,000 (700,000)
2. Past service cost 200,000 (200,000)
3. Interest expense on PBO
500,000 (500,000)
4. Interest income on FVPA
(600,000) 600,000
5. Contribution to the plan
(1,000,000) 1,000,000
6. Actuarial gain due to
decrease in PBO
(500,000) 500,000
plan assets (300,000) 300,000
(800,000) 800,000 (1,000,000) 7,900,000 (5,900,000)
8. Interest expense on effect of
asset selling 30,000 (30,000)
asset ceiling 470,000 (470,000)
Balances- December 31 (330,000) 830,000 (1,000,000) 7,400,000 (5,900,000)

Employees benefit expense 830,000
Cash 1,000,000
Net remeasurement gain-OCI 330,000
Computations:

= 500,000

600,000
Plan Assets = 900,000 – 600,000
= 300,000
Effect on Asset ceiling, Jan 1 = 300,000
Effect on Asset ceiling, Dec 31 = 2,000,000 – 1,200,000

= 800,000
Interest expense on
Asset Selling = 300,000 x 10%
= 30,000
Effect on asset ceiling, Dec 31 800,000

Effect on asset ceiling, Jan 1 300,000
-----------
Total change in the effect of asset ceiling 500,000
On January 1 ( 30,000)
-----------
Remeasurement loss on asset ceiling 470,000
=======
Reconciliation:
Per Book (General Ledger)
Prepaid/Accrued benefit Cost, beginning 1,000,000
Debit Adjustment- Prepaid/Accrued benefit
---------------
=========
Per Memorandum record

FVPA, Dec 31 7,400,000
PBO, Dec 31 5,900,000
---------------
========
EXERCISES
E.1. Pau Company adopted a defined plan on January 1, 2019. The pension funding is made to
the trustee on December 31 each year:
2018 2019
Service cost Php 1,500,000 Php 1,650,000
Funding payment 1,700,000 1,850,000
Interest on defined benefit
obligation 150,000
Interest income and actual return
on plan assets 170,000
What is the prepaid pension cost on December 31, 2019
a. Php200,000
b. Php250,000
c. Php420,000
d. Php220,000
Benefit expense
Service cost Php 1,650,000
Interest on DBO 150,000
Interest income and actual
Return on plan assets ( 170,000)
---------------------------
Total 1,630,000
Funding payment ( 1,850,000)
----------------------------
Prepaid pension cost adj for 2019 220,000
Add: Prepaid Pension cost Jan 1, 2019
(1,700,000-1,500,000) 200,000
---------------------------
Prepaid pension cost, Dec 31, 2019 420,000 (C)
================
E.2. Camil Company had the following balances relating to a defined plan on December 31,
2019:

Projected benefit obligation 33,000,000
Asset ceiling 2,500,000
What is the prepaid benefit cost to reported in the December 31, 2019 statement of
financial position?
a. Php4,000,000
b. Php1,500,000
c. Php2,500,000
d. Php0
FVPA, 12/31/2019 Php 37,000,000

PBO, 12/31/2019 33,000,000
--------------------------
Prepaid benefit cost, 12/31/2019 4,000,000 (A)
===============
E.3. Mari Company provided the following information pertaining to a defined benefit pension
plan for the current year:
Prepaid pension cost, January 1 Php 20,000
Current service cost 190,000
Interest expense on PBO 380,000
Interest income on plan assets 400,000
Past service cost during the year 500,000
Employer contribution 400,000
What is the accrued pension cost at year end?
a. Php250,000
b. Php290,000
c. Php270,000
d. Php400,000
Employees benefit expense

Interest expense on PBO 380,000
Interest income on plan assets ( 400,000)
----------------------
Total 670,000
Less: Employer contribution 400,000
----------------------
Accrued pension cost adj for 2019 270,000
Less: Prepaid pension cost, January 1, 2019 20,000
---------------------
Accrued pension cost at year end 250,000 (A)
============
E.4. Pau Company provided the following information pertaining to a pension plan for the
current year:
Actuarial value of projected benefit obligation
at beginning of year Php 7,200,000
Assumed discount rate 10%
Service cost 1,800,000
Pension benefits paid 1,500,000
No change in actuarial estimate occurred during the current year.
What is the projected benefit obligation at year-end?

a. Php6,420,000
b. Php7,500,000
c. Php7,920,000
d. Php8,220,000
PBO, beginning Php 7,200,000

Service cost 1,800,000
Interest expense on PBO (7,200,000 x 10%) 720,000
Pension benefits paid ( 1,500,000)
------------------------
PBO, ending Php 8,220,000 (D)
==============
E.5. Mari Company provided the following information with respect to the defined plan for the
current year:
Projected benefit obligation:
January 1 Php 3,000,000
December 31 3,500,000
Contribution to the plan 600,000
Settlement discount rate 10%
What is the current service cost for the current year?
a. Php700,000
b. Php600,000
c. Php500,000
d. Php300,000
PBO, January 1 Php 3,000,000

Interest expense on PBO (3,000,000 x 10%) 300,000
Benefits paid to retirees ( 500,000)
--------------------------
2,800,000
PBO, December 31 3,500,000
--------------------------
Current service cost Php 700,000 (A)
==============
E.6. Pau Company provided the following information relating to a defined benefit plan for the
current year:
Interest income on plan assets 400,000
Past service cost during the year 50,000
Annual interest on pension liability 500,000
What amount should be reported as defined benefit cost for the current year?
a. Php2,150,000
b. Php1,700,000
c. Php1,800,000
d. Php1,750,000

Interest income on plan assets ( 400,000)
Annual interest on pension liability 500,000
---------------
Defined benefit cost Php 1,750,000 (D)
========
E.7. Pau Company provided the following information pertaining to defined benefit plan for the
current year:
FVPA, beginning Php 3,500,000
Employer contributions 1,100,000
Benefits paid 850,000
What was the actual return on plan assets?
a. Php1,500,000
b. Php2,600,000
c. Php1,750,000
d. Php850,000
What was the actual return on plan assets?
FVPA, beginning Php 3,500,000

Employer contributions 1,100,000
Benefit’s paid ( 850,000)
---------------------------
3,750,000
---------------------------
Actual return on plan assets Php 1,500,000 (A)
===============
E.8. On January 1, 2019, Camil Company reported the following information in relation to a
defined benefit plan:

Projected benefit obligations 7,500,000
During the current year, the entity determined that the current service cost was Php1,400,000
and the discount rate is 10%.
The actual return on plan assets during the year was Php840,000.
Other related information for the current year:

Contribution to the plan Php 1,200,000
Benefits paid to retirees 1,500,000
Decrease in projected benefit obligation
due to changes in actuarial assumptions 200,000
Present value of defined obligation settled 500,000
Settlement price of defined benefit obligation 400,000
1. What amount should be reported in the income statement for the current year as employee
benefit expense?
a. Php2,150,000
b. Php2,050,000
c. Php1,350,000
d. Php1,450,000
2. What is the net amount of “remeasurements” for 2019?

a. Php140,000
b. Php200,000
c. Php340,000
d. Php100,000
3. What is the fair value of plan assets on December 31, 2019?

a. Php7,140,000
b. Php7,540,000
c. Php8,200,000
d. Php7,000,000
4. What is the projected benefit obligation on December 31, 2019?

a. Php7,950,000
b. Php7,450,000
c. Php7,650,000
d. Php9,650,000
5. What is the balance of the Prepaid/Accrued benefit cost on December 31, 2019?
a. 310,000 debit
b. 310,000 credit
c. 650,000 debit
d. 650,000 credit
WORKSHEET
Balance – January 1 7,000,000 (7,500,000)
6. Benefits paid (1,500,000) 1,500,000
7. Decrease in PBO due to
changes in actuarial
assumptions (200,000) 200,000
plan assets (140,000) 140,000
9. Settlement gain (100,000) (400,000) 500,000
Balances- December 31 (340,000) 1,350,000 (1,200,000) 7,140,000 (7,450,000)
1. c 3.a 4.b
Cash 1,200,000
Remeasurement OCI 340,000
Computations:

= 750,000

700,000
Plan Assets = 840,000 – 700,000
= 140,000 (2.a)
Settlement gain = 500,000 – 400,000

= 100,000
Reconciliation:
Prepaid/Accrued benefit Cost, beginning 500,000 CR
Debit Adjustment- Prepaid/Accrued benefit 190,000
-----------------
Prepaid/Accrued benefit cost-Dec 31 310,000 CR (5.b)
=========
Per Memorandum Ledger
------------
========
E.9. On January 1, 2019, Mari Company had a projected benefit obligation of Php10,000,000
and a pension fund with fair value of Php9,200,000.
The entity provided the following information related to the pension plan during the current year:
Actual return on the pension fund 250,000
Benefits paid to retirees 1,100,000
Contribution to the pension fund 1,050,000
Discount rate 9%
Expected return on pension fund 10%
1. What is the pension expense for the current year?
a. Php1,372,000
b. Php2,100,000
c. Php1,850,000
d. Php1,050,000
2. What is the remeasurement gain or loss on December 31, 2019?

a. Php578,000 gain
b. Php578,000 loss
c. Php250,000 gain
d. Php250,000 loss
3. What is the pension asset or liability on December 31, 2019?

a. Php1,700,000 liability
b. Php1,700,000 asset
c. Php800,000 liability
d. Php800,000 asset
WORKSHEET
Balance – January 1 9,200,000 (10,000,000)
3. Interest expense on PBO 1,000,000 (1,000,000)
6. Benefits paid (1,100,000) 1,100,000
plan assets 578,000 (578,000)
Balances- December 31 578,000 1,372,000 (1,050,000) 9,400,000 11,100,000
2-b 1-a
Remeasurement OCI 578,000
Cash 1,050,000
Computations:

= 1,000,000

828,000
Remeasurement loss on
Plan Assets = 250,000 – 828,000
= 578,000
Reconciliation:
Prepaid/Accrued benefit Cost, beginning 800,000 CR
Debit Adjustment- Prepaid/Accrued benefit 900,000
-----------------
Prepaid/Accrued benefit cost-Dec 31 1,700,000 CR (3.a)
=========
------------
========’
E.10. Pau Company provided the following information in relation to a defined benefit plan for
the current year:
January 1 December 31
FVPA Php 2,600,000 Php 3,000,000
PBO 2,000,000 2,100,000
Prepaid/Accrued benefit cost-
surplus 600,000 900,000
Asset ceiling 200,000 300,000
Effect of asset ceiling 400,000 600,000
Current service cost 100,000
Contribution to the plan 350,000
Benefit paid 150,000
Discount rate 10%
1. What is the actual return on plan assets for the current year:
a. Php200,000
b. Php400,000
c. Php150,000
d. Php260,000
(140,000 +260,000 = 400,000)
2. What is the actuarial gain due to decrease in PBO?

a. Php50,000
b. Php40,000
c. Php30,000
d. Php0
3. What amount should be reported as employee benefit expense?

a. Php200,000
b. Php100,000
c. Php80,000
d. Php40,000
4. What is the net remeasurement loss for the current year?
a. Php30,000
b. Php220,000
c. Php270,000
d. Php170,000
WORKSHEET
Balance – January 1 2,600,000 (2,000,000)
1. Current service cost 100,000 (100,000)
5. Contribution to the plan (350,000) 350,000
6. Benefits paid (150,000) 150,000
Actuarial gain due to
decrease in PBO (50,000) 50,000
8. Remeasurement gain
on plan assets (140,000) 140,000
10. Interest expense on
effect of asset selling 40,000 (40,000)
asset ceiling 160,000 (160,000)
Balances- December 31 (30,000) 80,000 (350,000) 3,000,000 (2,100,000)

Employees benefit expense* 80,000
Cash*** 350,000
Net remeasurement loss-OCI** 30,000
Computations:

= 200,000

260,000
Plan Assets = Actual Return on Plan Assets –
Interest Income on FVPA
Effect on Asset ceiling, beg = 400,000
Effect on Asset ceiling, end = 600,000
Interest expense on
Asset Selling = 400,000 x 10%
= 40,000
Effect on asset ceiling, Dec 31 600,000

Effect on asset ceiling, Jan 1 400,000
-----------
Total change in the effect of asset ceiling 200,000
On January 1 ( 40,000)
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Remeasurement gain/loss on asset ceiling 160,000
‘ =======
Reconciliation:
Per General Ledger
Prepaid/Accrued benefit Cost, beginning 600,000
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Defined Benefit Plan-Lecture

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Defined Benefit Plan-Lecture

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DEFINED BENEFIT PLAN-WORKSHEET APPROACH

The subentity maintains information that does not appear

Projected Benefit Obligation (PBO) of Defined Benefit Obligation(DBO)

The “Prepaid/Accrued benefit cost” account is the balancing figure.

Journal entry (recorded in company’s book)

Interest expense on PBO = PBO, beginning x Discount rate or settlement

Interest Income on FVPA = FVPA, beginning x Discount rate or expected return

Settlement gain = Present value of defined benefit obligation settled –

Effect on Asset ceiling, beg = Prepaid/Accrued benefit cost, beg – Asset

Effect on asset ceiling, Dec 31 xxx

Prepaid/Accrued benefit Cost, beginning xxx

FVPA, ending xxx

Working Paper Entries/Worksheet Journal Entries ( Not Recorded in Company’s Books)

1. Employee benefit expense xxx

2. Employee benefit expense xxx

4. Fair value of plan assets xxx

5. Fair value of plan assets xxx

6. Projected benefit obligation xxx

7. Remeasurement loss-OCI xxx

8. Fair value of plan assets xxx

9. Projected benefit obligation xxx

10. Employees benefit expense xxx

11. Remeasurement loss on asset ceiling xxx

12. Fair value of plan assets xxx

Prepaid/Accrued benefit cost, Dec 31 xxx

Effect on asset ceiling, ending xxx

Effect of asset ceiling, beginning xxx

Remeassurement gain/loss on plan assets xxx

Suggested Answer with Computation

Interest expense on PBO = 11,000,000 x 4%

Interest Income on FVPA = 8,000,000 x 4%

Settlement gain = 1,000,000 – 900,000

(5) Reconciliation of the general ledger with memorandum ledger

Suggested Answer with computation

Interest Income on FVPA = 6,700,000 x 10%

Prepaid/Accrued benefit Cost, Jan 1 900,000

FVPA, ending 7,900,000

4. Employees benefit expense 919,000

Interest expense on PBO = (5,500,000 – 850,000+1,250,000) x 6%

Interest Income on FVPA = 4,750,000 x 6%

FVPA, Jan 1 4,750,000

Credit Adjustment- Prepaid/Accrued benefit

During the current year, the following data are gathered:

2. Determine the projected benefit obligation on December 31, 2019.

3. Determine the effect of asset ceiling on December 31, 2019.

4. Compute the employee benefit expense for the current year.

5. Compute the “remeasurement” on December 31, 2109.

6. Prepare journal entry to record the employee benefit expense.

7. Reconcile the prepaid/accrued benefit cost account.

Suggested Answer with computation

Journal entry (recorded in company’s book)

Interest expense on PBO = 5,000,000 x 10%

Interest Income on FVPA = 6,000,000 x 10%

Effect on Asset ceiling, Jan 1 = 300,000

Effect on Asset ceiling, Dec 31 = 2,000,000 – 1,200,000

Effect on asset ceiling, Dec 31 800,000

Per Memorandum record

Fair value of plan assets Php 37,000,000

FVPA, 12/31/2019 Php 37,000,000

Employees benefit expense

No change in actuarial estimate occurred during the current year.

What is the projected benefit obligation at year-end?

PBO, beginning Php 7,200,000