Postemployment Benefits and Other Benefits

 Employee Benefits (Postemployment Benefits)

Employee benefits are all forms of consideration given by an entity in exchange of services rendered
by employees or for the termination of employment. PAS 19 Revised or 19R prescribes the
accounting and disclosure for employee benefits. For the purpose of this standard, employees
include directors and other management personnel. The standard enumerates the following
employee benefits:
a. Postemployment benefits
b. Short-term employee benefits
c. Other long-term employee benefits
d. Termination benefits

Postemployment benefits are employee benefits, other than termination benefits and short-term
benefits, which are payable after completion of employment. Postemployment benefits include:
a. Retirement benefits, such as pensions and lump sum payments on retirement
b. Postemployment life insurance
c. Postemployment medical care

Contributory plan-the employer and employee make contributions to the retirement benefit.
Noncontributory plan-only the employer makes contributions to the retirement plan.
Funded plan-the entity set aside funds for future retirement benefits by making payments to a
funding agency, such as a trustee, bank or insurance company.
Unfunded plan- the entity retains the obligation for the payment of retirement benefits without the
establishment of a separate fund.

Defined contribution plan

- Is a postemployment benefit plan under which an entity pays fixed contributions into a
separate entity known as the fund.
- No legal or construction obligation to pay further contributions if the fund does not hold
sufficient assets to pay all employee benefits.
- The contribution is definite but the benefit is indefinite.
- The trustee administers, manages and invests the funds.
- The employee bears the investment risk.
- Once paid, the employer has no more obligation under the plan.

Defined benefit plan

- Postemployment plan other than a defined contribution plan
- An entity’s obligation is to provide the agreed benefits to employees.
- Employee is guaranteed specific or definite amount of benefit.
- The benefit is definite but the contribution is indefinite.
- The entity assumes the investment risk.

Postemployment benefit plans under the law

a. Social Security System-this postemployment benefit plan is a defined contribution plan
because the entity’s obligation is limited to specified contributions to the plan.
b. R.A. 7641-this postemployment benefit plan is a defined benefit plan because the entity’s
obligation is to provide specific level of benefit for every year of service.

Accounting for defined contribution plan

- Is a straightforward because the obligation of the entity is determined by the amount
contributed for each period.
- There are no actuarial assumptions to measure the contribution and there is no
possibility of any actuarial gain or loss.
- The obligations are measured on an undiscounted basis.

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 1. The contribution shall be recognized as expense in the period it is payable.
2. Any unpaid contribution at the end of the period shall be recognized as accrued expense.
3. Any excess contribution shall be recognized as prepaid expense but only to the extent that
the prepayment will lead to a reduction in future payments or cash refund.

Illustration I
An employee is a member of the faculty of accounting at a certain university. During the current
year, the employee earned P600,000. The employee is covered by the university’s defined
contribution plan which requires the university to contribute the equivalent of 5% of the employee’s
salary or P30,000 for the current year to a trustee. Assuming yearly contribution, the university shall
recognize the contribution as expense as follows:

Employee benefit expense 30,000

Cash 30,000

Illustration II
On January 31, 2020, an entity paid P100,000 contribution to a defined contribution plan in
exchange for services performed by the employees in December 2019.

1. To record the accrual of benefit on December 31, 2019:

Employee benefit expense 100,000
Accrued benefit payable 100,000

2. To record the payment of the contribution on January 31, 2020:

Accrued benefit payable 100,000
Cash 100,000

Illustration III
On December 31, 2019, an entity paid P200,000 contribution to a defined benefit contribution plan.
Of this amount, P150,000 is in part exchange for services performed by the employees in December
2019, and the balance of P50,000 is in respect of services to be performed in 2020. The contribution
to the defined contribution plan is recorded on December 31, 2019 as follows:

Employee benefit expense 150,000

Prepaid benefit expense 50,000
Cash 200,000

Accounting for defined benefit plan

- Is complex because actuarial assumptions are required to measure the obligation and
the expense and there is a possibility of actuarial gains and losses.
- The obligation is measure on a discounted basis because it may be settled many years
after the employees render the related service.
- May be funded, fully funded or partly funded by the contributions of the entity.
- The expense recognized is not necessarily the amount of contribution for the period.

Components of defined benefit cost

1. Service Cost which comprises:
a. Current service cost (CSC)
b. Past service cost (PSC)
c. Any gain or loss on settlement (Present Value of PBO or DBO to settle – Settlement
Price)

2. Net interest which comprises:

a. Interest expense on defined benefit liability (PBO beg x Discount rate)
b. Interest income on plan assets (FVPA beg x Discount rate)
c. Interest expense on effect of asset ceiling (Effect of asset ceiling beg x Discount rate)

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 3. Remeasurements which comprises:
a. Actuarial gain and loss (PBO actual-PBO estimated).
If PBO actual is higher than PBO estimated, the difference is an actuarial loss, vice versa.
b. Actual return on plan assets less interest income on plan assets (Actual return-Interest
income)
If Actual return is higher than interest income, the difference is a remeasurement gain
on plan assets, otherwise loss.
c. Any change in the asset ceiling (Effect of asset ceiling end- Effect of asset ceiling beg (+/-)
Interest expense on effect of asset ceiling beg x Discount rate)

Note: The service cost and net interest are included in profit or loss as component of employee
benefit expense.

All of the remeasurements are fully recognized through other comprehensive income and are not
recycled or reclassified subsequently.

The measurement of defined benefit cost is usually made by an actuary, the mathematical expert
best qualified to do the job.
Component 1 +2 +3= Total Defined Benefit Cost

Current service cost

-is the increase in the present value of the defined benefit obligation resulting from employee
service in the current period.

Net Interest
-net interest on defined benefit liability or asset is the change in the defined benefit obligation and
plan assets as a result of the passage of time.

Past service cost

-is the change in the present value of defined benefit obligation for employee service in prior periods
resulting from a plan amendment or curtailment.
-plan amendment or curtailment.
-plan amendment includes introduction of defined benefit plan or changes to an existing defined
benefit plan.
-plan curtailment is a significant reduction by the entity in the number of employees covered by the
defined benefit plan. (Closing of plant, discontinuance of an operation, termination or suspension of
a plan)

Plan assets
Plan assets comprise assets held by a long-term benefit fund and qualifying insurance policies.
The conditions for assets held by a long-term benefit fund are:
a. The assets are held by an entity, the fund itself that is legally separate from the reporting
entity.
b. The assets are available to pay only employee benefits.
c. The assets are not available to the reporting entity’s own creditors even in bankruptcy.
d. The asset cannot be returned to the reporting entity or can be returned to the reporting
entity of the remaining assets of the fund are sufficient to meet all employee benefit
obligations.

Qualifying insurance policy

-is an insurance issued by an issuer that is not a related party of the reporting entity and the
proceeds of the policy can be used only to pay employee benefits and are not available to the
reporting entity’s own creditors even in bankruptcy.

Measurement of plan assets

Plan assets are measured at fair value.

Return on plan assets

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The components of return on plan assets include the ffg:
a. Interest, dividend and other income derived from the plan assets.
b. Realized and unrealized gains and losses on the plan.

However, the ffg. shall be deducted in computing the return on plan assets:
a. Any costs of managing the plan assets or costs of managing investments.
b. Any tax payable by the plan itself or any tax on investment income.

Projected benefit obligation

-is the actuarial present value of all benefits attributed by the pension benefit formula to employee
service rendered before a specified date base on future compensation level.
In other words, the amount of the benefit obligation includes salary increases.

Determination of actuarial gain or loss

a. If the actual benefit obligation is higher than the estimated amount, there is an actuarial
loss.
b. If the actual benefit obligation is lower than the estimated amount, there is an actuarial gain.

Basic accounting considerations

- The benefit plan be viewed as a subentity separate and distinct from the primary entity,
which is the employer.
- The subentity maintains information that does not appear in the financial statements of
the primary entity.
- Memorandum records
a. Fair value plan assets (FVPA)
b. Projected benefit obligation (PBO)

Formulas:

Prepaid/Accrued Benefit Cost (P/ABC)

FVPA, beg X FVPA, end X

PBO, beg (X) PBO, end (X)
P/ABC, beg X/(X) P/ABC, end X/(X)

*Prepaid/Accrued benefit cost (noncurrent asset/noncurrent liability)

Employee Benefit Expense (P/L)

CSC
PSC
Any gain or loss on settlement (PV of PBO or DBO – Settlement Price)
Interest expense on defined/projected benefit obligation (PBO beg x Discount rate)
(D/PBO)

Interest income on fair value of plan assets (FVPA) (FVPA beg x Discount rate)
Interest expense on effect of asset ceiling (Effect of asset ceiling beg x Discount rate)
Employee benefit expense

Net Remeasurements (OCI)

Remeasurements Effect Net

a. Actuarial gain and loss (PBO actual < PBO estimated), gain X/(X)
(PBO actual > PBO estimated), loss
sometimes, actuarial gain due to decrease in PBO or
(PBO actual-PBO estimated) actual loss due to increase in PBO is already given

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 b. Actual return on plan assets
(Actual return > Interest income)=Actual gain
less interest income on plan X/(X)
(Actual return < Interest income)=Actual loss
assets
(Actual return on assets -Int
Income)

(AC end < AC beg+Interest expense on effect of AC

c. Any change in the asset ceiling beg) = remeasurement gain X/(X)
(AC end > AC beg-Interest expense on effect of AC
beg) remeasurement loss

(Effect of asset ceiling end- Effect

of asset ceiling beg (+/-) Interest
expense on effect of asset ceiling
beg x Discount rate)

Net remeasurement gain/loss X/(X)

Journal Entry:

Employee benefit expense X

Net remeasurement loss-OCI X
Cash (contribution to the plan) X
Prepaid/Accrued benefit cost (balancing figure) X

Employee benefit expense X

Prepaid/Accrued benefit cost (balancing figure) X
Cash (contribution to the plan) X
Net remeasurement gain-OCI X

Reconciliation Formulas:

Fair Value of Plan Assets (FVPA)

Fair value of Plan Assets (FVPA)beg X

Add: Contribution to the fund X
Interest Income X
Remeasurement gain on plan assets X
X
Less: Benefits paid (X)
Settlement price of D/PBO (X)
Fair value of Plan Assets (FVPA)end X

Defined or Projected Benefit Obligation (D/PBO)

Projected Benefit Obligation (PBO) beg X

CSC X
PSC X
PV of defined benefit obligation settled (X)
Interest expense on PBO beg X

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 (X)/
Actuarial gain due to decrease/increase in PBO X
Benefits paid (X)
PBO end X

FVPA more than PBO

-The fund is overfunded and therefore, there is a prepaid benefit cost which PAS 19R calls it surplus.
-Surplus must not exceed the asset ceiling
-Asset ceiling is the present value of any economic benefits available in the form of refunds from the
plan or reductions in future contributions to the plan.

Prepaid/Accrued Benefit Cost (P/ABC)

Illustration: (all amounts are assumed)

FVPA, beg 4,500,000 FVPA, end 6,000,000

PBO, beg (4,000,000) PBO,end 4,800,000
P/ABC, beg 500,000 P/ABC, end 1,200,000
Asset Ceiling (300,000) Asset Ceiling, end (usually given) (800,000)
Effect of Asset Ceiling beg. 200,000 Effect of Asset Ceiling, end 400,000

Effect of Asset Ceiling, end 400,000

Effect of Asset Ceiling beg. 200,000
Total change in the effect of asset ceiling 200,000
Interest expense on effect of asset ceiling beg (10%x 200,000) (20,000)
Remeasurement loss on asset ceiling 180,000

*this is an example of letter C (Any change in the Asset Ceiling)in the remeasurement table/formula

Settlement of a plan
-A settlement is a transaction that eliminates all further legal or constructive obligations for part or
all of the benefits provided under a defined benefit plan.

Illustration:
Present Value (PV) of defined benefit obligation settled (liability)500,000
Settlement Price 450,000
Settlement gain 50,000

Note: PV of defined benefit obligation settled is part of the PBO formula/reconciliation as deduction.
Settlement Price is part of the FVPA formula/reconciliation as deduction.
Settlement gain is part of the Employee benefit expense as deduction.
If the difference resulted to settlement loss, then it is part of the Employee benefit expense as an
addition.

Comprehensive Illustration:
On January 1, 2020, the memorandum records in relation to a defined benefit plan showed the
following:
FVPA 5,000,000
PBO 7,000,000
(2,000,000
P/ABC )

During the current year, the following transactions are gathered:

CSC 1,200,000
PSC 300,000

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 Actual return on plan assets 800,000
Contribution to the plan 1,000,000
Benefits paid 500,000
Actuarial loss due to increase in PBO 900,000
Discount rate 10%

Computations: Employee benefit expense

CSC 1,200,000
PSC 300,000
Interest expense on PBO (10% x 7,000,000) 700,000
Interest income on FVPA (10% x 5,000,000) (500,000)
Employee benefit expense 1,700,000

Computation: Net Remeasurements

Actual return on plan assets 800,000
Interest income on FVPA (500,000)
Remeasurement gain on plan assets 300,000

Actuarial loss due to increase in PBO (900,000)

Net remeasurement loss (600,000)

Computation: Total Defined Benefit Cost

Employee benefit expense 1,700,000
Net remeasurement loss *600,000
Total defined benefit cost 2,300,000

* if the result is gain, deduct to employee benefit expense

Journal Entry:

Employee benefit expense 1,700,000

Net remeasurement loss-OCI 600,000
Cash (contribution to the plan) 1,000,000
Prepaid/Accrued benefit cost (balancing figure) 1,300,000*

P/ABC-January 1 (2,000,000)
*Credit adjustment-ABC during the year (1,300,000)
P/ABC-December 31 (3,300,000)**

**let’s check this amount through reconciliation of FVPA and PBO

Reconciliation

FVPA-January 1 5,000,000
Contribution to the plan 1,000,000
Actual return on plan assets 800,000
Benefits paid (500,000)
FVPA-December 31 6,300,000

PBO-January 1 7,000,000
CSC 1,200,000
PSC 300,000

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 Interest expense on PBO 700,000
Benefits paid (500,000)
Actuarial loss to increase in PBO 900,000
PBO-December 31 9,600,000

FVPA-December 31 6,300,000
PBO-December 31 (9,600,000)
Prepaid/accrued benefit cost-credit (3,300,000)

Other Employee Benefits

Short-term employee benefits are employee benefits which are expected to be settled within 12
months.
a. Salaries, wages and social security contributions
b. Short-term compensated or paid absences such as paid annual leave and paid sick leave
b.1 vesting/nonvesting
b.2 accumulating/nonaccumulating paid absences

c. Profit sharing and bonuses payable within twelve months

d. Nonmonetary benefits, such as medical care, housing, car and free or subsidized goods.

Other long-term employee benefits

a. Long-term paid absences such as long service or sabbatical leave
b. Jubilee or other long service benefit
c. Long-term disability benefits
d. Profit sharing bonuses
e. Deferred compensation

Termination benefits are employee benefits provided in exchange for the termination of an
employee’s employment as a result of either:
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.

Comprehensive Illustration I:
Employees are each entitled to 10 working days of paid sick leave for each year. Unused sick leave
may be carried forward for one calendar year only. Sick leave is taken out of any balance brought
forward from the previous year and then out of the current year’s entitlement on a FIFO basis.
During 2020, the sick leave records of key employees Aye, Bee and Cee are as follows:

Aye Bee Cee

Daily wage 1,500 2,500 4,000
Unused sick leave on January 1, 2020 10 6 4
Sick leave earned in 2020 10 10 10
Sick leave taken in 2020 7 9 6
Wage increase effective January 1, 2020 20% 25% 30%

Compute the accrued liability for sick leave on December 31, 2020 for the three key employees.

Aye (1500 x 1.20 x 10) 18,000

Bee (2,500 x 1.25 x 7) 21,875
Cee (4,000 x 1.30 x 8) 41,600
81,475

Comprehensive Illustration II:

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On January 1, 2020, an entity announced its decision to close its factory located in Mindanao and
terminate all 200 employees as a result of economic downturn. The entity shall pay P20,000 per
employee upon termination. However, to ensure that the windup of the factory occurs smoothly
and all remaining customers’ 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 that employees who agree to stay until the closing of the factory
shall receive P60,000 payment at the end of eight months in addition to receiving their current wage
throughout the period of closure instead of the P20,000.

Based on this offer, the entity expected to retain 50 employees until the factory is closed.

1. Compute the total benefit under the termination plan.

Employees leaving before closure (150 x P20,000) 3,000,000
Employees leaving until closure (50 x P60,000) 3,000,000
6,000,000

2. Compute the amount attributable to termination benefit.

(200 x P20,000) 4,000,000

3. Compute the amount attributable to short-term benefit.

Total benefit per employee 60,000
Termination benefit 20,000
Short-term per employee 40,000
Number of employees leaving until closure 50
Total amount of short-term benefit 2,000,000

Additional Illustration:
A-At the beginning of the current year, Trisha Company reported the fair value of plan assets at
P6,000,000 and projected benefit obligation at P8,000,000. During the year, the entity made a lump
sum payment to certain plan participants in exchange for their rights to receive specified
postemployment benefits. The lump sum payment was P800,000 and the present value of the
defined benefit obligation settled was P1,000,000. In addition, the following data are gathered
during the current year:
Current service cost 900,000
Actual return on plan assets 800,000
Contribution to the plan 700,000
Discount rate 12%

1. What is the employee benefit expense? 940,000

PV if DBO settled 1,000,000

Lump sum payment 800,000
Gain on plan settlement 200,000

CSC 900,000
Int exp (12% x 8M) 960,000
Int income (12% x 6M) (720,000)
Gain on plan settlement (200,000)
Employee benefit expense 940,000

2. What is the fair value of plan assets on December 31? 6,700,000

FVPA-January 1 6,000,000
Contribution 700,000
Actual return 800,000

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 Lump sum payment for plan settlement (800,000)
FVPA-Dec 31 6,700,000

3.What is the projected benefit obligation on December 31? 8,860,000

PBO-January 1 8,000,000
Current service cost 900,000
Interest expense 960,000
PV of defined benefit obligation settled (1,000,000)
PBO-December 31 8,860,000

4.What is the accrued benefit cost on December 31? (2,160,000)

Accrued-December 31 (6,700,000-8,860,000) (2,160,000)

B-Sandra Company provided the following information for the current year:
Current service cost 500,000
Interest expense on PBO 600,000
Interest income on plan assets 350,000
Loss on plan settlement before normal retirement date 250,000
Present value of benefit obligation settled in advance 950,000
Past service cost during the year 300,000
Actual return on plan assets 850,000
Actuarial loss on PBO during the year 200,000
Contribution to the plan 1,500,000
Benefits paid to retirees 1,000,000
Discount or settlement rate 10%

1. What is the employee benefit expense for the current year? 1,300,000
CSC 500,000
Int exp on PBO 600,000
Int inc on plan assets (350,000)
Loss on plan settlement 250,000
PSC during the year 300,000
Employee benefit expense (EBE) 1,300,000

2.What is the net remeasurement for the current year? 300,000 gain
Actual return on plan assets 850,000
Int income on plan assets (350,000)
Remeasurement gain on plan assets 500,000
Actuarial loss on PBO (200,000)
Net remeasurement gain 300,000

3.What amount should be reported as accrued benefit cost at year-end? 2,000,000

Employee benefit expense 1,300,000
Net remeasurement gain (300,000)
Defined benefit cost 1,000,000
Contribution to the plan 1,500,000
Prepaid benefit cost during the year 500,000

Journal Entry
EBE 1,300,000

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 P/ABC 500,000
Cash 1,500,000
Remeasurement gain-OCI 300,000

FVPA-Jan 1 (350,000/10%) 3,500,000

PBO- Jan 1 (600,000/10%) (6,000,000)
P/ABC-Jan 1 (2,500,000)
Debit adjustment 500,000
P/ABC -Dec 31 (2,000,000)

4. What is the fair value of plan assets at year-end? 3,650,000

FVPA -Jan 1 3,500,000

Contribution to the plan 1,500,000
Actual return on plan assets 850,000
Settlement before retirement date (1,200,000)
Benefit paid to retirees (1,000,000)
FVPA-Dec 31 3,650,000

PV of benefit obligation settled in advance 950,000

Loss on plan settlement before normal retirement 250,000
Settlement payment before retirement 1,200,000

5. What is the projected benefit obligation at year-end? 5,650,000

PBO-Jan 1 6,000,000
CSC 500,000
PSC 300,000
Int exp in PBO 600,000
PV of benefit obligation settled in advance (950,000)
Benefits paid to retirees (1,000,000)
Actuarial loss on PBO-increase in PBO 200,000
PBO- Dec 31 5,650,000

FVPA-Dec 31 3,650,000
PBO- Dec 31 (5,650,000)
P/ABC (2,000,000)

C-Kamille Company reported that the employees are each entitled to two weeks of paid vacation
leave. During the current year, the employees earned 1,500 weeks of vacation leave and used 1,000
weeks. The current salary of the employees is an average of P3,000 per week and the salary is
expected to increase by P300 per week or a future weekly salary of P3,300.
1. What is the vacation pay expense if the benefit is accumulating and vesting?
Vacation weeks used (1,000 x 3,000) 3,000,000
Vacation weeks unused (500 x 3,300) 1,650,000
Total vacation pay expense 4,650,000

Accumulating and vesting paid absences are those that can be carried forward and the employees
are entitled to a cash payment for unused entitlement upon leaving the entity.

2. What is the vacation pay expense if the benefit is nonaccumulating and nonvesting? 3,000,000
Vacation pay expense (1,000 x 3,000 ) 3,000,000

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 CLOSURE ACTIViTIES
Employee Benefits (Postemployments and other Employee Benefits)

The following work exercises intend to evaluate what the learners have learned in this topic. Write
your answers in your portfolio journal.

Part I- Theories: Choose the letter of the correct answer.

1. Which is incorrect concerning the recognition and measurement of a defined benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense and there is a
possibility of actuarial gains and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution
due for the period.

2. It is the increase in the present value of the defined benefit obligation for employee service in
prior periods, resulting from a plan amendment or curtailment.
a. Current service cost
b. Net interest
c. Past service cost
d. Employee benefit cost

3. Which of the following statements is incorrect concerning the actuarial assumptions?

a. Actuarial assumptions shall be unbiased and mutually compatible.
b. Actuarial assumptions are unbiased if they are neither imprudent nor excessively
conservative.
c. Actuarial assumptions comprise of demographic assumptions and financial
assumptions.
d. Postemployment benefit obligations shall be measured on a basis that reflects current
salary and ignores future salary increases.

4. What is the treatment of actuarial gains and losses?

a. As remeasurements recognized immediately in other comprehensive income and subsequently
recycled to profit or loss.
b. As remeasurements recognized immediately in profit or loss.
c. As remeasurements recognized immediately in retained earnings.
d. As remeasurements recognized immediately in other comprehensive income and permanently
excluded from profit or loss.

5. Which of the following statements characterizes defined contribution plans?

a. Defined contribution plans are more complex in construction than defined benefit plans.
b. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.

Part II- A. Problem Solving. Show your solutions in good form.

On January 1, 2019, Rachelleen Company provided the following information in relation to its
defined benefit plan:

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 Fair value of plan assets 6,000,000
Projected benefit obligation 5,000,000
Prepaid/accrued benefit cost-surplus 1,000,000
Asset ceiling 700,000
Effect of asset ceiling 300,000

During the current year, the following data are gathered:

Current service cost 700,000
Actual return on plan assets 900,000
Contribution to the plan 1,000,000
Past service cost 200,000
Decrease in PBO due to change in actuarial assumptions 500,000
Asset Ceiling on December 31, 2019 1,200,000
Discount rate 10%

Required:
1. Determine the FV of plan assets on December 31, 2019.
2. Determine the projected 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 “remeasurements” on December 31, 2019.
6. Prepare the journal entry to record the employee benefit expense.
7. Reconcile the prepaid/accrued benefit cost account.

Part II – B. Problem Solving: Show your computations in good form.

Problem A
The following relates to the defined benefit pension plan for the Citywide Company for the year
ending December 31, 2019:

Projected benefit obligation, Jan. 1 6,700,000

Projected benefit obligation, Dec. 31 7,200,000
Fair value of plan assets, Jan. 1 6,500,000
Fair value of plan assets, Dec. 31 6,900,000
Expected return on plan assets 675,000
Actuarial loss due to increase in PBO 150,000
Employer contribution 300,000
Benefits paid to retirees 600,000
Discount rate 10%

1. How much would be the current service cost for the year?
2. How much would be the actual return on plan assets?
3. What is the amount of remeasurement gain or loss on plan assets?

Problem B
The following information relates to Company K’s pension plan:

Plan asset, January 1, 2019 950,000

Defined benefit obligation, January 1, 2019 1,000,000
Current service cost for 2019 90,000
Discount rate at January 1, 2019 10%
Expected return on plan asset at January 1, 2019 100,000

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Net remeasurement loss arising in 2019 15,000
Past service cost 30,000
Vesting period for past service cost 3 years

4. What amount of defined benefit cost should be recognized during 2019?

Problem C
The following information is made available involving the defined benefit pension plan of Diwata
Company for the year 2019:

Fair value of plan asset, 1/1/19 3,500,000

Present value of benefit obligation, 1/1/19 3,750,000
Current service cost 700,000
Actual return on plan asset 420,000
Contribution to the plan 600,000
Benefits paid to retirees 750,000
Decrease in present value of benefit obligation
due to change in actuarial assumptions 100,000
Present value of defined benefit obligation settled 250,000
Settlement price of defined benefit obligation 200,000
Discount rate 10%

5. What amount of employee benefit cost should be reported in the profit or loss?
6. What is the net amount of remeasurements for the year 2019?

Problem D
The Feather Corporation received the following report from its actuary at the end of the year:

01/01/19 12/31/19
Projected benefit obligation 5,200,000 5,920,000
Fair value of pension plan assets 5,000,000 5,760,000
Remeasurement gain or loss on plan assets ?
Remeasurement loss on obligation 36,000
Discount rate 12%
Benefits paid during the year 740,000
Contributions made during the year 500,000

7. What is the amount of employee benefit expense to be charged against income for the year 2019?

Problem E
The following information relates to the defined benefit pension plan for the Citywide Company for
the year ending December 31, 2019:

Projected benefit obligation, January 1 6,900,000

Projected benefit obligation, December 31 7,793,500
Fair value of plan assets, January 1 7,552,500
Fair value of plan assets, December 31 8,347,500
Employer contribution 637,500
Benefits paid to retirees 585,000
Discount rate 10%
Ceiling- January 1 300,000

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8. How much would be the employee benefit expense (net pension cost) for the year 2019?

Problem F
G Company had the following information on December 31, 2019:

Fair value of plan assets, Dec 31 8,000,000

Actuarial gain due to decrease in PBO 50,000
Discount rate 10%
Return on plan assets 500,000
Benefits paid 400,000
PV of PBO settled 500,000
Settlement loss on obligation settled 100,000
Contribution to the fund 1,500,000

9. Assuming there is no change in actuarial assumptions, what is the amount to be debited to other
comprehensive income?

Problem G
I Company provided the following information on December 31, 2019:
Current service cost 520,000
Actual return on plan assets 810,000
Interest expense on PBO 590,000
Interest income on plan assets 150,000
Loss on plan settlement 240,000
Past service cost during the year 360,000
Contribution to pension fund 950,000
10. What portion (total amount) of these items will be added to the Projected benefit obligation
(PBO)?
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Proverbs 3:5-6 “Trust in the LORD with all your heart and lean not on your own understanding; in all
your ways submit to him, and he will make your paths straight.”

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