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Problem 1

On January 1, 2018, Power Company provides for a lump sum benefit payable upon termination of
service that is equal to 10% of final salary for each year of service. The salary in 2015 is P400,000 and is
assumed to increase at 5% compounded each year. The discount rate to be used is 10% per annum.

Power Company believes that the employee will not leave the company before the expected retirement
date of December 31, 2021. Also, Power Company believes that there are no changes in actuarial
assumptions in future years.

Question 1 – What is the amount of current service cost Power company should include in its pension
expense in year 2020? P 42,095

Final salary (P400,000 x 1.05 x 1.05 x 1.05) P 463,050

X Benefit Rate 10%
Retirement pay for every service period P 46,305

Service years 2018 2019 2020 2021

Retirement Pay 46,305 46,305 46,305 46,305
x PV factor of 10% .7513 .8264 .9091 1.00
PV of service cost 34,790 38,269 42,095 46,305

PBO – Beg 0 34,790 76,538 126,287

Interest cost 0 3,479 7,654 12,628
Service Cost 34,790 38,269 42,095 46,305
PBO – End 34,790 76,538 126,287 185,220

Question 2 – What is the present value of the defined obligation as of December 31, 2020? P 126,287

Problem 2

Fortune Company, a medium enterprises has the following information in relation to its defined benefit
pension plan:

Expected return on plan assets P 220,000

Actual return on plan assets 230,000
Benefits paid to retirees 200,000
Contributions 345,000
Present Value of DBO – January 1, 2019 2,500,000
Present Value of DBO – December 31, 2019 2,870,000
Current Service Costs 300,000
Past service cost to be recognized 40,000
Discount Rate 10%
Actuarial gain in obligation 20,000
Question 1 – Assume that Fortune Company adopts a policy of recognizing actuarial gains and losses in
the period in which they occur in the other comprehensive income, what amount of net pension
expense should Fortune Company report in its 2019 statement of comprehensive income? P 370,000
Current Service Cost 300,000
Past Service Cost 40,000
Interest Expense (2,500,000 x 1%) 250,000
Expected Return on Plant assets (220,000)
Pension Expense 370,000

Question 2 – Assume that Fortune Company adopts a policy of recognizing actuarial gains and losses in
the period in which they occur in the profit or loss, what amount of net pension expense should
Fortune Company report in its 2019 statement of comprehensive income? P 340,000
Current Service Cost 300,000
Past Service Cost 40,000
Interest Expense (2,500,000 x 1%) 250,000
Expected Return on Plant assets (220,000)
Actuarial Gain Plan assets (230,000 – 220,000) (10,000)
Actuarial Gain PBO (20,000)
Pension Expense 340,000

Problem 3
On January 1, 2019, Sheila Company had the following balances related to a defined benefit plan:

Fair value of plan assets P 5,750,000

Projected benefit obligation 6,500,000

The actuary provided the following data for the current year:
Current Service Costs 600,000
Settlement discount rate 10%
Expected return on plan assets 8%
Actual return on plan assets 700,000
Contribution to the plan 900,000
Benefits paid to the retirees 100,000

Question 1 – What is the employee benefit expense? P675,000

Current Service Cost 600,000
Interest Expenses (10% x 6,500,000) 650,000
Interest Income (10% x 5,750,000) (575,000)
Employee Benefit Expense 675,000

Question 2 – What is the re-measurement gain on plant assets? P 125,000

Actual Return on Plant Assets 700,000
Interest Income on Fair Value of Plan Assets (575,000)
Re-Measurement Gain 125,000

Question 3 – What is the defined benefit costs? P550,000

 Employee Benefit Expense 675,000
Re-measurement gain on plat assets (125,000)
Define benefit cost 550,000
Contribution to the plan 900,000
Overfunding – Prepaid 350,000

Question 4 – What is the prepaid/accrued benefit costs on December 31? P 400,000 accrued
Accrued beginning 750,000
Less: Adjustments 350,000
Accrued End 400,000

Problem 4

On January 1, 2019, Raphael Company reported the fair value of the plan assets at P6,700,000 and
projected benefit obligation at P7,600,000. The entity revealed the following for the current year:

Current Service Cost P 1,450,000

Past Service Cost 300,000
Discount Rate 10%
Actual Return on Plan Assets 500,000
Contribution to the Plan 1,500,000
Benefits paid to the retirees 800,000

Question 1 – What is the employee benefit expense? P 1,840,000

Current service cost 1,450,000

Pat service cost 300,000
Interest expense (7,600,000 x 10%) 760,000
Interest income (6,700,000 x 10%) (670,000)
Employee benefit expense 1,840,000

Question 2 – What is the retirement gain or loss on plan assets? P 170,000 loss

Actual return on plan assets 500,000

Interest income 670,000
Retirement loss 170,000

Question 3 – What is the fair value of plan assets on December 31? P 7,900,000

FVPA – Jan 1 6,700,000

Contribution 1,500,000
Actual return on plan assets 500,000
Benefits paid (800,000)
FVPA – Dec. 31 7,900,000

Question 4 – What is the projected benefit obligation on December 31? P 9, 310,000

PBO – Jan 1 7,600,000

Current service cost 1,450,000
Past service cost 300,000
Interest expense 760,000
Benefits paid ( 800,000 )
PBO – Dec. 31 9,310,000