Name: Mahusay, Jeth A.

Date: March, 2021

Year: BSA-3 Instructor:Ms. Anna Mae Magbanua, CPA
Subject: Intermediate Accounting 2

MODULE 3
Scenario 1
Scenario 1: An assortment of employee benefits

Which Benefits are Short-Term?

Catalina has made a list of all the benefits she believes could be short-term benefits (see below). She is
happy that the other head office benefits, which she hasn’t listed, are not short-term as they are
payable over many years or are not expected to be settled wholly before 12 months after 2018 year-
end. To help her classify the benefits in her list, decide which items are clearly short-term benefit.
Identify whether it is a short term benefits or Other long-term benefits.

1. Paid sick leave and paid maternity leave

Short term benefits

2. Deferred compensation earned in 2018 and payable 15 months after the 2017 year-end

Other long-term benefits

3. Paid annual leave

Short term benefits

4. Cash bonus payable in January 2019 on results obtained for 2018

Short term benefits

5. Wages, salaries, and social security contributions

Short term benefits

6. Medical care for current employees

Short term benefits

Head Office Holiday

A few minutes later, Catalina walks over to you again. She has been able to calculate all of the accruals
for benefits due within 12 months, apart from that for the head office annual leave. She would like your
help with the journal entries.
The total liability to be recognized for the head office annual leave in the financial statements at
December 31, 2018 should be [€400; €4,480;€20,400; €24,480].

The total expense to be recognized for annual leave during the year is [€400; €4,480; €20,400; €24,480].

An Assortment of Head Office Benefits

IAS 19 has different accounting treatment for defined benefit plans, defined contribution plans, or other
long0term employee benefits. To determine the appropriate treatment, you need to classify the
employee benefits in the extract from the group payroll manual that Catalina gave you (above).

Identify whether it is a Defined benefit plan, Defined contribution plan, or Other long-term benefits.

1. Benefit A Defined benefit plan

2. Benefit B Defined benefit plan

3. Benefit C Defined contribution plan

4. Benefit D Defined contribution plan

5. Benefit E Other long-term benefits

6. Benefit F Defined benefit plan

Defined Contribution versus Defined Benefit

You have classified the employee benefits for Catalina. However, she would like to understand how you
classified the post-employment benefit plans as either defined benefit or defined contribution plans.

Below is a list of statements that either describes the features of a defined benefit plan or a defined
contribution plan. In order to help Catalina, choose the statements below which best describe the
features of a defined benefit plan.

Select the one correct option.

A. The plans have terms that specify how contributions, into the plan, are to be determined.

B. Actuarial risk and investment risk fall on the employees.

C. The entity’s obligation is determined by the amount to be contributed into the plan for that period.

D. The entity’s obligation is to provide the benefits agreed under the plan to current and former
employees.

E. None of the above.

Accounting for Benefit C

Catalina has looked in Mark’s file and found that there are no calculations for the group schemes. The
incomplete details for Benefit C, the defined contribution plan, are on top of the file, so this is a good
place to start. Oh dear, Catalina is still looking confused.

Notes about Benefit C

Benefit C (Group scheme)

The employing entity is required to pay a contribution equal to 5 percent of salaries into a plan. Once
the contributions have been paid, the entity has no further payment obligations.

 Total salaries of all employees under Benefit C in 2018: €900,000

 Total payments into the plan in 2018: €40,000
 There was no asset or liability for prepaid/outstanding contributions at December 31, 2018

Determine what expense and liability (if any) should be recognized for the employees under this plan.

A. Expense €40,000; Liability €0

B. Expense €45,000; Liability €0

C. Expense €40,000; Liability €5,000

D. Expense €45,000; Liability €5,000

Scenario 2: Head office defined benefit plan

You explain to Bill how to determine the net defined benefit asset/liability. Using the details about
benefit A in Mark’s email, choose the correct values to determine the net defined benefit asset/liability
to be shown in the statement of financial position at December 31, 2018.

Components:

Present value of the defined benefit obligation: $3,382,000

Fair value of the plan assets: $2,295,000

Net defined benefit at December 31, 2018: $1,087,000

Current Service Cost

Next, you show Bill the effects of the current service cost for the period. Choose the correct journal
entry. Your answer will enable him to see the impact of the current service cost on the value of the
defined benefit obligation and the plan assets. Refer on the attachment contained in Mark’s email
(Benefit A).

A. Debit: Defined benefit obligation €260,000 Credit: Plan assets €260,000

B. Debit: Defined benefit expense/income €260,000 Credit: Plan assets €260,000

C. Debit: Defined benefit expense/income €260,000 Credit: Cash €260,000

D. Debit: Defined benefit obligation €260,000 Credit: Defined benefit expense/income €260,000

E. Debit: Plan assets €260,000 Credit: Defined benefit obligation €260,000

F. Debit: Defined benefit expense/income €260,000 Credit: Defined benefit expense/income €260,000

None of the Choices: My answer is:

Debit: Defined benefit expense/income $260,000

Credit: Defined benefit obligation $260,000

Excellent! The information in Mark’s fax will enable you to calculate the net interest on the net defined
benefit liability.

Note: To keep calculations simple, assume that all transactions occur at the end of the year (i.e., there
are no changes to the value of the plan assets and the obligation during the year as a result of
contribution and benefit payments).

Choose the correct value for the net interest on the net defined benefit liability for the year.

A. €90,000

B. €210,000

C. €300,000

D. None of the above

Calculate the Net Defined Benefit Expense

Now, you should have enough information to determine the net defined benefit expense to be
recognized in profit or loss. Using the details about Benefit A from Mark’s email, choose the correct
value from the options below.

A. €160,000

B. €193,000

C. €208,000

D. €223,000

E. €245,000

F. €350,000

The next step is to determine the re-measurements of the net defined benefit liability to be recognized
in the other comprehensive income. Using the information about Benefit A, which is detailed in the
attachment from Mark’s email which Bill sent to you before lunch, choose the correct value.

A. €15,000 gain

B. €16,000 gain
C. €17,000 loss

D. €108,000 gain

E. €130,000 gain

F. €170,000 loss

Scenario 3: Sales bonuses and termination benefits

Identify whether Meeting the criteria or Not meeting the criteria.

1. The plan establishes the termination benefits that employees will receive in sufficient detail that
employees can determine the type and amount of benefits they will receive when their employment is
terminated.

Meeting the criteria

2. The plan identifies the number of employees whose employment is to be terminated, their job
classifications or functions and their locations (but the plan need not identify each individual employee),
and the expected completion date.

Meeting the criteria

3. Actions required to complete the plan indicate that it is unlikely that significant changes to the plan
will be made.

Meeting the criteria