Employee Benefits

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PAS 19R - Employee Benefits

Post Employment Benefits

Defined Contribution Plan - Contribution = Expense


(Contribution is definite but the benefit is - Actual > Required = Prepaid / Asset
indefinite) - Actual < Required = Accrued / Liability

Defined Benefit Plan


( Benefit is definite but contribution is
indefinite)

Defined Benefit Cost


P&L OCI Funding (credit
to cash)
Settlement Service Cost Net interest Remeasurements

Gain Current S.C. I.E. (DBO, beg. x S.R.) R.G./R.L. (on P.A.)
Loss Prior S.C. I.I. (PA, beg. x S.R.) A.G./A.L. (on DBO)

Contribution

1,650,000
1,850,000
150,000
- 170,000
Annual Service Cost 10% of final salary
Discount Rate / Settlement Rate 12%
Current Salary 100,000 1,630,000
Salary is increasing every year by 5%
Vesting period 5 years 220,000

Annual Salary
Year 1 100,000
Year 2 105,000
Year 3 110,250
Year 4 115,763
Year 5 121,551

Annual S.C. PV factor PV Int


Year 1 12,155 0.64 7,725 927
Year 2 12,155 0.71 8,652
Year 3 12,155 0.80 9,690
Year 4 12,155 0.89 10,853
Year 5 12,155 1.00 12,155
60,775
Problem 1

A director of Ester Company shall receive a retirement benefit of 20% of final salary per annum for a contractual period of 3
years. The anticipated salary is P1,000,000 for 2013, P1,200,000 for 2014 and P1,500,000 for 2015. The discount rate is 10%.
Under the projected unit credit method, what is the estimated pension liability on December 31, 2014?

PV factor PV
12/31/13 300,000 0.83 247,934
12/31/14 300,000 0.91 272,727
12/31/15 300,000 1.00 300,000

Problem 2

Elaine Company adopted a defined benefit plan on January 1, 2017. The pension funding payment is made to the trustee on
December 31 each year.
2017 2018
Service cost 1,500,000 1,650,000
Funding payment 1,700,000 1,850,000
Interest on DBO 150,000
Interest income and actual return on plan assets 170,000

What is the prepaid pension cost on December 31, 2018? P420,000

Problem 3

Angela Company provided the following information pertaining to a defined pension plan for the current year:

Prepaid pension cost, January 1 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?

Problem 4

Greenbelt Company provided the following information with respect to the defined benefit plan for the current year:
Projected benefit obligation
Jan. 1 3,000,000
Dec. 31 3,500,000
Contribution to the plan 600,000
Benefits paid to retirees 500,000
Settlement rate 10%

What is the current service cost for the current year?

Problem 5

Bronson Company received the following report from the independent actuary in relation to a defined benefit pension plan a
year-end:

Pension benefits paid 135,000


PBO at year-end 2,160,000
Interest expense on PBO 120,000
Discount rate 8%

What is the current service cost for the current year?

Problem 6

Jelli Company provided the following information relating to a defined benefit plan for the current year:

Current service cost 1,600,000


Actual return of plan assets 350,000
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?
CSC 1,600,000
AR - 350,000
PSC 50,000
IE 500,000
Defined Benefit Cost 1,800,000
Annual Salary 1,000,000 EBE 100,000
10% Cash
Required Contribution 100,000 Accrued Benefit Cost
EBE 100,000
Actual 90,000 Prepaid benefit cost 20,000
Required Contribution 100,000 Cash

Notes/Off-balance sheet
accounts Plan Assets
B/S
Beg. End
II Settlement
P/ABC DBO Plan Assets
RG/(RL)
Contri.
CSC I.I.
PSC R.G. Actual Return
IE (R.L.)
DBO vs. PA (A.G.) Funding DBO
A.L. Settlement End Beg
Settlement Settlement IE
1,650,000 CSC
1,850,000 PSC
150,000 A.L./(A.G.)
170,000 Journal Entry:

2,017 EBE - P&L 1,500,000


Remeasurements - OCI xx
P/ABC 200,000
Cash

2,018 EBE - P&L 1,630,000


P/ABC 220,000
Cash
Interest Total
1,038 1,163 1,302 12,155
1,038 1,163 1,302 12,155
1,163 1,302 12,155
1,302 12,155
12,155
60,775

ontractual period of 3
discount rate is 10%.
?

Interest Total Year 1 Year 2


247,934 247,934 272,727
24,793 545,455 24,793
54,545 900,000 27,273
300,000
900,000

made to the trustee on


e current year:

benefit pension plan at

AR 350,000
II 400,000
RL - PA - 50,000
CSC 1,600,000
PSC 50,000
IE 500,000
II - 400,000
RL - PA 50,000
Defined Benefit Cost 1,800,000
90,000
10,000

120,000

1,700,000

1,850,000
Problem 7

Final salary
Janine Company operates a defined benefit plan that pays a lump sum on
termination of service of 8% of final salary for each year of service. Paul joins Annual S.C.
the entity at the start of 2016 at an annual salary of P600,000. Janine
Company's policy provides for an increase in salary of 5% per annum. The
discount rate is 10%. It is expected that Paul will retire after 10 years of CSC - YEAR 1
service. CSC - YEAR 2

Settlement rate is 10%; expected rate of return is 12%. Contributions which


are made at the end of the year were P28,000 and P32,000 for 2016 and 2017.
Actual return of plan assets in 2016 and 2017 were P0 and P3,200.

8 periods 9 periods 10 periods


Future value of P1 at 5% 1.55 1.63
Present value of P1 at 10% 0.47 0.42 0.39

2016 2017 2016


DBO, beginning - 31,248 Journal Entries:
Current service cost 31,248 34,968
Interest cost - 3,125
Actuarial Loss ( Gain ) - -
Less: Benefits paid - -
DBO, end 31,248 69,341
2017
2016 2017
Plan Assets, beginning - 28,000
Contributions 28,000 32,000
Interest Income - 2,800 ABC 12/31/17
Actuarial Gain (Loss) - 400
Less: Benefits paid - -
Plan Assets, end 28,000 63,200 DBO 12/31/17

2016 2017 PA 12/31/17


Pension expense in P&L ABC 12/31/17
Service cost 31,248 34,968
Net interest - 325 Expense
Remeasurements in OCI - 400 Gain

Problem 8
2016
Beg.
CSC
IE
II
RL - PA
Contri.
Settlement
End

2017
Beg.
CSC
IE (Beg of DBO x S.R.)
PSC
II
RG - PA
Elizabeth Company adopted a defined benefit plan. The balances as of Contri.
January 1, 2016 were P200,000 for plan assets and P220,000 for the projected
benefit obligation. Other data relating to 3 years' operation of the plan are as Settlement
follows: A.G.
End
2016 2017 2018
Annual service cost 40,000 51,000 66,000 2018
Settlement rate 12% 12% 12% Beg.
Expected rate of return 10% 10% 10% CSC
Actual return on plan assets 16,000 35,000 40,000 IE (Beg of DBO x S.R.)
Annual funding (contributions) 25,000 35,000 55,000 PSC
Benefits paid 15,000 20,000 25,000 II
Prior service cost (plan amended, 1/1/17) 80,000 RG - PA
Change in actuarial assumptions established Contri.
a PBO of ( Dec. 31, 2017-2018) 419,500 518,000 Settlement
Average service years of all employees 10 10 10 A.G.
End
930,000
x 8%
74,400

31,248
34,968

Plan Assets
- Beg. End 28,000
rnal Entries: - II Settlement -
- RG/(RL)
EBE - P/L 31,248 28,000 Contri.
Cash 28,000
ABC 3,248
DBO
EBE - P/L 35,293 31,248 End Beg -
Rem. - OCI 400 - Settlement IE (S.R. x -
Cash 32,000 CSC 31,248
ABC 2,893 PSC -
C 12/31/17 6,141 A.L./(A.G.) -

DBO Plan Assets


69,341 End Beg 31,248 28,000 Beg. End 63,200
- Settlement IE (S.R. x Beg of DBO) 3,125 2,800 II Settlement -
63,200 CSC 34,968 400 RG/(RL)
6,141 PSC - 32,000 Contri.
A.L./(A.G.) -

Defined Benefit Cost


B/S Notes
P&L OCI 200,000
Funding
Net Plan 24,000
Service Cost Remeasurements P/ABC DBO
interest Assets - 8,000
25,000
20,000 - ABC 220,000 200,000
40,000 40,000
26,400 26,400 271,400
- 24,000 24,000 15,000
8,000 - 8,000
25,000 25,000
- 15,000 - 15,000
40,000 2,400 8,000 25,000 45,400 - ABC 271,400 226,000

45,400 - ABC 351,400 226,000


51,000 51,000 226,000
Beg of DBO x S.R.) 42,168 42,168 27,120
80,000 7,880
- 27,120 27,120 35,000
- 7,880 7,880
35,000 35,000
- 20,000 - 20,000 419,500
- 5,068 - 5,068 20,000
131,000 15,048 - 12,948 35,000 143,500 - ABC 419,500 276,000

143,500 - ABC 419,500 276,000


66,000 66,000
Beg of DBO x S.R.) 50,340 50,340
276,000
- 33,120 33,120 33,120
- 6,880 6,880 6,880
55,000 55,000 55,000
- 25,000 - 25,000
7,160 7,160
66,000 17,220 280 55,000 518,000 346,000 518,000
25,000
Plan Assets Journal Entry:
Beg. End 226,000
II Settlement 15,000 EBE - P/L 42,400
RG/(RL) Rem. Loss - OCI 8,000
Contri. Cash 25,000
ABC 25,400
DBO
End Beg 220,000 P/ABC - 12/31/16 45,400
Settlement IE (S.R. x 26,400
CSC 40,000
PSC -
A.L./(A.G.) -

Plan Assets EBE - P/L 146,048


Beg. End 276,000 Rem. Gain - OCI 12,948
II Settlement 20,000 Cash 35,000
RG/(RL) ABC 98,100
Contri.
ABC - 12/31/17 143,500
DBO
End Beg 351,400
Settlement IE (S.R. x 42,168
CSC 51,000
PSC
A.L./(A.G.) - 5,068

Plan Assets
Beg. End 346,000 EBE - P/L 83,220
II Settlement 25,000 Rem. Loss - OCI 280
RG/(RL) Cash 55,000
Contri. ABC 28,500

DBO ABC - 12/31/18 172,000


End Beg 419,500
Settlement IE (S.R. x 50,340 PA 12/31/18 346,000
CSC 66,000 DBO 12/31/18 518,000
PSC - ABC 12/31/18 172,000
A.L./(A.G.) 7,160
Problem 3

Angela Company provided the following information pertaining to a defined pension plan for the current year:

Prepaid pension cost, January 1 20,000


Current service cost 190,000 Defined B
Interest expense on PBO 380,000 P&L
Interest income on plan assets 400,000
Settlement
Past service cost during the year 500,000
Employer contribution 400,000
Gain
What is the accrued pension cost at year-end? Loss

Problem 4

Greenbelt Company provided the following information with respect to the


defined benefit plan for the current year: 3,500,000
Projected benefit obligation 500,000
Jan. 1 3,000,000
Dec. 31 3,500,000
Contribution to the plan 600,000
Benefits paid to retirees 500,000 4,000,000
Settlement rate 10%

What is the current service cost for the current year?


Problem 5

Bronson Company received the following report from the independent actuary in
relation to a defined benefit pension plan at year-end:
2,160,000
Pension benefits paid 135,000 135,000
PBO at year-end 2,160,000
Interest expense on PBO 120,000
Discount rate 8%

What is the current service cost for the current year? 2,295,000
or the current year:

Defined Benefit Cost


B/S
P&L OCI Funding (credit
to cash)
Service Cost Net interest Remeasurements P/ABC

Current S.C. I.E. (DBO, beg. x S.R.) R.G./R.L. (on P.A.)


Prior S.C. I.I. (PA, beg. x S.R.) A.G./A.L. (on DBO)

Contribution DBO vs. PA

190,000
380,000
- 400,000
500,000
400,000

EBE - P&L 670,000


Cash 400,000
P/ABC 270,000

Beg. PBC 20,000


Adj. ABC 270,000
End - ABC 250,000

DBO
End Beg 3,000,000
Settlement IE 300,000
CSC 700,000
PSC
A.L./(A.G.)
4,000,000
DBO
End Beg 1,500,000
Settlement IE (S.R. x Beg of DBO) 120,000
CSC 675,000
PSC
A.L./(A.G.)

1,620,000
Notes/Off-balance sheet
accounts

DBO Plan Assets

CSC I.I.
PSC R.G.
IE (R.L.)
(A.G.) Funding
A.L. Settlement
Settlement
190,000
380,000
400,000
500,000
400,000

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