CHAPTER 11 POSTEMPLOYMENT BENEFITS QUESTION 11-1 What are employee benefits? ANSWER 11-1 Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees or for the termination of employment. For the purpose of PAS 19R, employees include directors and other management personnel. Under PAS 19R, employee benefits include: Short-term employee benefits 1. 2 Postemployment benefits Long-term employee benefits, other than postemployment benefits 4, Termination benefits QUESTION 11-2 What are “postemployment benefits"? ANSWER 1.-2 Postemployment benefits are employee benefits, other than termination benefits and short-term employee 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 « Postemployment medical care 184 SS | QUESTION 11-3 Explain postemployment benefits plans. ANSWER 113 Postemployment benefits are usually embodied in an arrangement known as “postemployment benefit plan’. Most postemployment benefit plans are formal arrangements between an employer entity and its employees or their representatives. ‘These plans are usually established as part of the remuneration package for the employees. ‘Some postemployment benefit plans are informal as evidenced only by the entity's practice to pay postemployment benefits. ‘The plans may also be established by law whereby entities are required to contribute to national benefit plans. Postemployment benefit plans are classified as either defined contribution plan ot defined benefit plan, depending on the Cconomic substance of the plan as derived from the principal terms and conditions. ‘Such plans slay be contributory or noncontributory, and funded or unfunded, QUESTION 11-4 Explain contributory plan and noncontributory plan. ANSWER 11-4 il ke Under a contributory plan, the employer and employee ma’ contributions to the retirement benefit plan but they do not necessarily contribute equal amounts. Both the employer and the employee share in the retirement benefit cost. Joyer nakes der a noncontributory plan, only the emp ee Undetyatione to the retirement benefit plan. The employe! Shoulders all the retirement benefit cost 185,QUESTION 11-5 Explain funded plan and unfunded ANSWER 11-5 Under a funded plan, the entity sets retirement benefits by making payme! such as a trustee, bank or insurance com) Under an unfunded plan, the entity retains the obligation 4 the payment of retirement benefits without the esta shmeny of a separate fund. me QUESTION 11-6 Explain “defined contribution plan” ANSWER 11-6 A defined contribution plan is a pestemployment benefit plang inder which an entity pays fixed contributions into a separate entity known as the fund. ‘The entity shall have no legal or constructive further contributions if the fund does not hold to pay all employee benefits relating to emp! the current and prior periods ic or definite amount of Simply stated, the entity makes a specif contribution to a separate fund without specifying the retirement benefit to be received by the employee. ‘The contribution is definite but the benefit is indefinite. ‘The contribution may be a fixed amount, a percentag employer's income, a percentage of employee's earnings or & combination of these factors ‘Actually, the entity-niakes'the euitiibsition Yo 4, Griéstée’ whieh administers, manages and invests the funds, Conbequentt when an employes retires,-the aeciimulated fund ain the hands of the trustee: determines the retirement. benefil. ‘The employee's retirement benefit therefore dep: the plan has been managed by the trustee: If the plan provides exceptional investment performance ‘employee will share in the gain in the form of laryer retire henefit. If the plan does poorly, the employée will shan loss by receiving smaller retirement bericfi » Oh xe, th 186 ce. Pectpeyelinu QUESTION 11-7 Explain “defined benefit plan’ ANSWER 11-7 Under a defined benefit plan, an antit the agreed benefits to employces. An employee is guaranteed specific or defi which is usually related to the salary and years of service. ‘The benefit is definite but the contribution is indefinite. Actually, the entity must ¢ contributions such contributions plus earnings would be sufficiently large future retirement benefits. vestment risk ina defi ‘Thus, the entity assumes the plan. ly good, the entity fing, the Lf the plan is excep! “contribution holiday", mesning for a while, However, if the plan is po contributions for any expected promised future benefits. nA on QUESTION 1i-8 ment benefits under the ANSWER 11-8 sment benefit plan entity's obligation a sstem — This postemploy! cause the butions to the pl 1. Social Security Sys is a defined contribution plan be is limited to specified contri percentage of salary it plan is a defined sat ben ; abligation is to pro vice 7641 — ‘This postemployme 2 RA. benefit plan because the ent ° cpveific level of berielit for every Y82" ° se 187for a defined contnibution plan is straightfo yy is determined by the amu mount no actuarial assumptions to measure the cont jit of any actuarial gain or loee, Cut The contribution shall be recognized as expense in the itis payable, The entity shall disclose the amount recognized ts expense for a defined contnibution plan, ‘Any unpaid contribution at the end of the period shall be recognized as accrued expense. Any exvess contribution shall be recognized as pre; ot onls to the extent that the repayment will lead in future payments or a cash refund. QUESTION 11-10 Describe the accounting for a defined benefit plan ANSWER 11-10 Accounting for a defined benefit plan is complex because ‘assumptions aré required to measure the obligation ‘¢ expense and there is a possibility of actuarial gains obligations are measured on a discounted basis because the benefits may be settled many years afi r the employees render the related service. Defined benefit plans may be unfunded, fully funded or part funded by the contributions rt weet Y funded ox port) Consequently, under a defined benefit plan, the expense recognized is not necessarily the am ibutic the period. ly ount of contribution for t 188 QUESTION 11-11 What are the components of defined benefit cost? ANSWER 11-11 PAS 19R, paragraph 120, provides that an entity shall recognize the components of defined benefit cost, except to the extent that another PFRS requires or permits their inclusion in the cost of an asset, as follows: 1. Service cost which comprises: a. Current service cost b. Past service cost fe. Any gain or loss on plan settlement 2. Net interest which comprises: a. Interest expense on defined benefit liability b. Interest income on plan assets 3, Remeasurements which comprise a. Actuarial gain and loss & Actual return on plan assets less interest income on plan assets . c. Any change in the effect of asset ceiling ‘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 Ae ot omiprehensive income and are not recycled or reclassified subsequently. ‘Accordingly, the defined benefit cost is partly profit or loss representing tre ice cost and net interest, and partly other repreechencive income representing the Femeasurements benefit cost is usually made by ‘The measurement of defined benefit owt 6 A op do the ‘an actuary, the mathematical job. PAS 19R encourages involve @ qualified actus benefit obligation. an entity to but does not require an ently 13 ary in the measurement 169QUESTION 11-12 Explain briefly the actuarial valuation the employee benefit expense under a defined benefit plan ANSWER 11-12 The projected unit credit method, also known as the benefit valuation method, shall be used in determining 1d present value of the defined benefit obligation and the rela the a eeeert cervice cost and where applicable, past service elated ‘This method sees each period of service as giving rise to additional unit of benefit entitlement and measares each ie Separately to build up the final obligation. nit QUESTION 11-13 What is a “current service cost”? ANSWER 11-13 Current service cost is the increase-in the present value of the current benefit obligation resulting from employee service in the current period. Otherwise stated, current service cost is the. cost, to an entity under a defined benefit plan for service rendered by employees in the current year. QUESTION 11-14 Explain “net interest”. ANSWER 11-14 The net interest expense or net interest income fs the differe ace betweon the interest expense on the defined benefit obligation and interest income on the plan assets. a. Interest expense — This is computed by multiplying the defined benefit obligation at the beginning of the reporting period by the “discount rate”. b. Interest income ~ ‘ihis is computed by multiplying the fait Value of plan assets at the beginning of the reporting period by the “same discount rate”. 190 QUESTION 11-15 Explain recognition of “past service vost ANSWER 11-15 Past service cost is the change in benefit obligation for employee ss from a plan a In other words, past defined benefit plan for = periods resulting from the for amendment of an c plan. Plan dmendnient includes introduction of or changes to an existing defined benefit Plan curtailment is a si employees covered by the defined ‘A curtailment may arise from a following: a. Closing of a plant, b. Discontinuance of an operat cc. Termination or suspension PAS 19R, paragraph 103, provides past service cost ax an expense dates: a, When the plan ame’ b. When the entity recotnizes termination benefits ‘This means that al vice shall be recognized as ex? Under PAS 19R, the entity ¢ tunvested past service costs ove! period Vested bene! yee benefits that are not & 191\d by a long-term benef insurance policies. The conditions for assets ‘benefit fund are: tS he a. Theassets are held by an entity, the fund itself, thatis separate from the reporting entity, legal, be enots are available to pay only employes benef ¢. The assets are not available to ‘the reporting entier creditors even in bankruptcy, YS Ov a. The assets cannot be returned to the reporting entj can be returned only to the reporting entity if the rem; tty or 2a en are sufficient to meet all employee bene obligations or the assets are returned to the reparting on to reimburse it for emp! QUESTION 11-17 Explain a “qualifying insurance policy” ANSWER 11-17 A qualifying insurance polic: is an insurance policy issued by an insurer that is not a related party of the reporting entity and the proceeds of the policy can be used only to pay emplayce benefits and are not available to the reporting entity's om creditors even in bankruptcy. ‘The proceeds of the polley cannot be paid to the reporting ent except: a. When the proceeds represent surplus assets not needed for the policy to pay employee benefits. b. When the proceeds are returned to the reporting entity © reimburse it for employee benefits already paid Plan assets exclude unpaid contributi ions due from the repo! entity to the fund, as well as any nontransferable financ instrumente issued by the entity and held by the fund. 192, QUESTION 11-18 Explain “return on plan assets" ANSWER 11-18 ‘The components of return on The comp eturn on plan assets include the a. Interest, dividen ing Interes ividend and other income derived from the plan b. Redlized and unrealized gains and losses on the plan assets. QUESTION 11-19 Distinguish “accumulated benefit obligation” and “projected benefit obligation’. ANSWER 11-19 “Accumulated benefit obligation is the actuarial present value of se enefits attributed by the pension benefit formula to Employee service rendered before a specified date ‘The amount is based on current compensation level of Cmpleyees and therefore includes no assumptions about future salary increases. Projected benefit obligation is the actuarial present value of all Lemehits attributed by the pension benefit formula ke employee service rendered before a specified date based on future compensation level. In other words, the amount of the benefit obligation includes future salary increases that the entity projects it will pay to employees during the remainder of their employment. ‘Accordingly, the main difference betw em the two is that acoumulated benefit obligation is ‘pased on current salary, suhile projected benefit obligation i= ‘based on future salary. 193QUESTION 11-20 What is the defined benefit obligation? ANSWER 11-20 Paragraph 67 of PAS 19R p projected unit credit met! of the defined benefit obligation a1 cost and where applicable, past service cost. rovides that an entity shall ‘hod to determine the present tt nd the related currene ssa x Paragraph 70 provides that in determining the present ya), of defined benefit obligation, an entity shall attribute be ve to periods of service under the benefit formula. efit Moreover, Paragraph 87 provides that an entity shall meas, Mere ret dnalit gbligation on the basis that, reflects any eared ed future salary increases that affect benefit, payable. Inconclusion, the defined benefit obligation shall be the projected benefit obligation. QUESTION 11-21 Explain actuarial gains and losses. ANSWER 11-21 ‘Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from experience adjustments and the effects of changes in actuarial assumptions. Experience adjustments are adjustrents from the differences between the previous actuarial assumptions and what has actually occurred. Experience adjustments arise because actual events inevitably differ from actuarial assumptions. QUESTION 11-22 Explain actuarial assumptions ANSWER 11-22 ‘Actuarial assumptions are an entity's best ¢ variables that would determine the ultimate cost of providing postemployment iased and mutually ‘Actuarial assumptions shall be compatible. Actuarial assumptions are imprudent nor excessively ¢ mutually compat jetween factors sui return on plan assets and discount rates. Actuarial assu ‘of demographic assumptions employee turnove! of plan members medical plans. neial assum benefit level If theie are no such bonds shall be used Defined benefit obli reflects estimatedQUESTION 11-23 e determination of actuarial gains and losses Explain ANSWER 11-23 s and losses ft value of the ges in actuari cesult from increases or decre, ¢Yefined benefit obligags® ‘on ‘Actuarial gain! ial assumptions and ex Perienge in the presen! because of chani adjustments. a. If the actual benefit obligation is higher than 4, estimated amount, there is 47 actuarial loss. e This means that the projected benefit obligation ig increased and the increase }S recognized as an actuarial loss. b. If the actual be! estimated amount, ‘This means that the projecte decreased and the decrease is T gain. QUESTION 11-24 Explain the recognition ANSWER 11-24 PAS 19R, paragraph 120, int “remeasurements". nefit obligation is lower tha ‘there is an actuarial gain. in the d benefit obligation has ecognized as an actuarial of actuarial gains and losses. roduces a new accounting jargon Remeasurements include actuarial gains and losses on defined benefit obligation. Paragraph 120 provides that all remeasurements, including eae) gains and losses, shall be recognized immediately in other comprehensive income. The remeasurements are not subsequently recycled or reclassified to profit or loss. Under PAS 19R, the corridor approach and recognition of actuarial gains and losses in pr now prohibited the immediate ‘ofit or loss a7 ‘Actuarial gains and losses are permanently excluded from profit or loss. QUESTION 11-25 Explain the two basic con Explain the, go basic co ‘siderations in accounting for a ANSWER 11-25 ‘The benefit plan shall be viewed as a 2 wed as a subentity separate and Fe acre the primary entity, which ithe employer ent. ‘The subentity maintains information that does not ‘The subentiy maint ihe primary ently, Suck ifgrmaton fe kept only by means of memorandum records and therefore not reflected in the general ledger accounts. ‘The information contained in the memorandum records of the subentity contains the following, among others: a. Pair value of plan assets (FVPA) b. Projected benefit obligation (PBO) ‘The fair value ofthe plan assets isthe source of fund sot aside in meeting future benefit payments. ‘The projected benefit obligation is the present value of the defined benefit liability. QUESTION 11-26 Explain the relationship between the FVPA and PBO in dowounting for a defined benefit plan: ANSWER 11-26 ‘The relationship between the FVPA and PBO can be expressed as follows: Fair value of plan assets = Less: Projected benefit obligation cad Prepaid/acerued benefit cost (P/ABCY x i ds ‘Theses two items are kept only in the memorandum reeor Tees subentty. The “prepaid/accrued ened cost” is the Hem ore appears in the statement of financial position of the employer entity. an is overfunded and FVPA is more than the PBO the plt thevsiore there is ‘a prepaid benefit cost, & noncurrent asset. FVPA is less than the 1, Tiatetore, there isan ‘accrued benefit cost, & noncurrent liability.QUESTION 11-27 xploin settlement of plan ANSWER 11-27 A settlement in at or constructive obligation provided under a defined bo 1 example, » one-off t contributions under the the purch Entities may settle their postemployn: purchasing annuity contracts from inu than the arnount in the re However, PAS 198 clarified that a lump su plan participants made under the terms of the Benefit plan ix not a settlement. This is referred to QUESTION 11-26 Explain recognition of gain or low on 5 ANSWER 11-28 routine PAS 19K, paragraph 110, providen that an recognize gain or lous on the settlement of 1 ¢ plan when the settlement occur, The gain or lone, on doltlemient in the difference between settlement price and the provent-value of tho defined lve obligation on the date’ of settlement - ‘The nettlement price includes any plan avsets transfi and any payments made directly by the entity in conn with the settlement a 7 / Any gain or lous on vettleme included in service cost in tl benefit expense. nt is fully recognized and he computation of employe 198 QUESTION 11-29 Explain the scenario “if the FVPA is more than PBO ANSWER 11-29 If the fair value of plan assets is more than the projected benefit obligation, tht plan is overfunded and therefor: there is a prepaid benefit cost which PAS 19R calls it surplus. PAS 19R, paragraph 64, provides that the surplus in 9 defined benefit plan must not exceed the asset ceiling determined by using the discount rate in the measurement of the defined benefit obligation ‘The 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 QUESTION 11-30 Explain the recognition of the change in the effect of the asset ceiling ANSWER 11-30 PAS 19R, paragraph ¥, provides that any change in the effect of the asset ceiling, excluding interest on the effect of the ceiling is a remeasurement to be recognized through other comprehensive income Paragraph 126 provides that the “interest un the effect of the asset ceiling" is part of the total change in the effect of the assct ceiling and is determined by multiplying the-elfect of the asset ceiling at the beyinning of the period by the discount rate. the interest on the omponent of employee Accordingly, the portion attributable effect of asset ceiling is included ax benefit expense. ‘The remainder of the change in the effect of asset ceiling a remeasurement recognized as component of othe: comprehensive income. 199QUESTION 11-31 What are the necessary disclosures for a defined contril plan and defined benefit plan? ribution ANSWER 11-31 Disclosures ~ defined contribution plan contribution plan. efined b. The contribution to defined contribution plan f The comment personnel as required by PAS 24 on relate’ party disclosures. disclosures ~ defined benefit plan a. Characteristics of the defined benefit plan and Caecated with the plan, for example, the nature of benefits provided and any minimum funding. b. Reconciliations for the fair value of plan assets, the present value of the defined benefit obligation and the effect of asset ceiling. . c. Separate showing of current service cost, past service cost, interest expense or income and remeasurements in the reconciliations. d. Disaggregation of the fair value of plan assets into classes that distinguish the nature and risks of assets, subdividing the plan assets into those that have a quoted market price and those that do not have a quoted market price. e. A sensitivity analysis for each significant actuarial assumption showing the effect on the defined benefit obligation for any change in the relevant actuarial assumption. Description of any funding arrangement and funding policy. g. Expected contribution to the plan for the next annual reporting period. Maturity profile of the defined benefit obligation. QUESTION 11-32 Explain the “transitional provision’ of PAS 19R. ANSWER 11-32 PAS 19R, paragraph 173, provides that an entity shall apply this standard retrospectively. ‘This means that any transitional effect of the application of the amendment under PAS 19R shall be accounted for as adjustment of the beginning balance of retained earnings. ‘The unamortized past service cost and the unrecognized actuarial gain or loss which is the remnant of the corridor approach shall be eliminated and accounted for retrospectively as an adjustment of retained earnings QUESTION 11-33 Explain the report of a defined contribution plan under PAS 26, ANSWER 11-33 ‘The report of a defined ontribution plan shall contain a statement of net assets available for benefits and 2 description of the funding policy. ‘The plan investments shall be carried at fair value. When plan investments are held for which an estimate of fair value is not possible, the reason why fair value is not used shall be disclosed. In practice, in many cases, plan assets shall have determinable fair value. In the discharge of their fiduciary responsibility, pla vruttues shall mandate that retirement plans ho'd on] marketable investments.QURSPION 11-34 Explain the report of a defined benefit plan under P. ANSWER 11-34 ‘The report of a defined beneGit plan shall contain either: 1 Anatom’ that showsthe net asesvaii reny eaten trent tue a promt iMag feu ead need ane seins ef A statement of net assets available for benefits, ine either a note disclosing the actuarial presen promised vested and nonvested benefits this information in an acco In rare cases, a rotirem in charneteristies of both defined contribution plan and delined benefit plan, Such a hybrid plan is deemed to be a defined benefit plan, QUESTION 11-35 Explain the frequency of actuarial valu: ANSWER 11-35, In many countries, netuarial valuations are not obtained more frequently than every three yenrs, PAS 26 does not make it ineumbent upon the plan to use: actuarial valuation. fan actuarial valuation has not been prepared on the the report, the most recent valuation is used snd the dat actuarial valuation is disclosed. ‘The report of a retirement plan, whether defined contribution and defined benefit plan, shall disclose the changes in net assets available for benefits, summary of significant policies, description of the plan and the effeet «any ch the plan during the period, QUESTION 11-36 Multiple choice (PAS 198) 1. These are all forms of consideration given by an entity mn exchange for services rendered hy emplovees & Emrlovee conmeantion ce Fringe benefits 4. Salaries and wages 2. These are employee benefits which are payahle after completion of employment. a. Short-term employee benefits term employee 4, Termination benefits 43, Postemployment employee benefits include all of the following, except & on fe. Postemployment life insurance fd, Postemployment medical eare fay pays 1 xed no Tet plan Defined benefit paln @. Multiemployer plan 203© Whiel concernigy ee fellowing sau contrat eeoniton and memset egeEeet the contri b, recognized a expense in ecognized as prepaig ‘ the prepayment + eens clon in future payments oe Cane aean 6. Which is i Which is incorrect concerning the recognition a surement of a defined benefit plan? so" S"4 ‘fxPense but only to the extent that a. Actuarial ic assumptions are required to meas obligation and expense and there is s posabity o actuarial gains and losses, eee d. The expense recognized for a defined benefit plan is ror eee IS TED noun of contain das the period. 7 7. What is the mandated method of determining the present value of the defined benefit-obligation? bo ee ‘age normal met! © Individual level premium method d. Aggregate method 8A multiemployer plan is defined as ‘a. A defined contribution plan or a defined benefit plan. & A defined contribution plan that pools the assets ‘contributed by various entiti c. Adefined benefit plan that provides benefite to oyees of more than one entity. that a ptraton a i e assets cont Us nee tet Bee not under common control and uses those that aie provide benefits to employees of more then ‘one entity. 204 9, What is @ postemployment plan under Philip a. Social Security System i Ren SGreeiherat Getter yaen ner RA Tea. 10, When an entity pays insurance premiums to fund = postemployment benefit plan and the entity hae no legal br constructive obligation on the policy, the postemployment benefit plan shall be treated as ©. Bither defined contribution or defined benefit plan 4d. Multiemployer plan ANSWER 11-36 La &e 2b ta Ba 8d bo fe Bd wa QUESTION 11-87 Multiple choice (PAS 19R) 1. The components of defined benefit cost include all, except a. Service cost B. Net interest f SERN the tan 2. The “service cost” of a defined benefit plan comprises all of the following, except ‘a. Current service cost Past service cost Gain or os on plan set ament 2084. Which of eh falling cotpapenit offi rrp eemenree iran pereaaeteen 4. Whet is the meaning of “not interest” in rel defined benefit cost in elation to» ext Ll Ghetdat warvion coer 4. Interest expense on defined benefit ability Pest service capt Taterest income on the fare valve of plan aset Net interest mnefit liability and interost income on the fair value of plan assets 4. Interest expense on defined benefit liability lese 4.It is the increase in the present value of the defined ee eee benefit obligation resulting from employ ‘benefit obliga a ployee servive in the aw ich of the following should be included in plan ase a. Assets held by a lune-term employee benefit fund ec. Past service cost d, Remeasurement rement 4. Neithor assets held by a Tong-term employee benefit fand nov qualifying insurance policy 5. It is the increase in the present value of the defined benefit obligation for employee service in prior periods, 4, Plan aneets are arzets held by a long-term benefit fund resulting from a plan amendment or curtailment. ana et satiny all of the following conditions, exeept atity, the fund itself that fe hola by an from the reporting entity. a, Current service cost is lerally ceparate b. Net interest bo Theassets in the fund are available to pay only employee benefits fare not available to the Sr bmnloyee beret con e The awsets in the fund reporting entity’= own et sue in relation to 6 Which of the following statements is tr the recognition of past service cost? , temployee benefit ubligations. lost hall be " 10-1 isan insurance policy issued by am insurer that 18 008 I de atalparty of the reperting entity and the proweels ‘pay or fund employee it plan. a. Vested and unvested past service vested over the remaining vesting periad ane et service cost shall be recognizad 8¢ ate ar ier ested past Scrvestod past service cost hall Be sin pole ean be wsed 2 ree te ofan bonefits under a defined hen expe tized over the remaining vesting period amortized invested past service cost shall be recognized in totained carnit “ Quuliting megane tar qualita fe Annuity: expe! jiatel ‘d,_ Unconditional 206 JJ insurance policy 21ANSWER | QUESTION 11-38 Multiple choice (PAS 19R) 1. This is defined as the best estimiate Tied Gaortine the eltimete. coor af erent postemployment benefits. Providing ©. Financial assumptions 4. Actuarial computations 2 Which of the following statements is incorr; concerning the actuarial assumptions? shes 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 as ions shall be measured on a basis that reflects current salary and ignores future salary. 3. The discount rate used in making actuarial assumptions shall be determined by reference to quality bon b. Stated rate on high quality bonds. b erarket yield at the end of reporting period 0” government bonds. d. Stated rate on government bonds. 4. "These ar the changes ithe ‘ene obligation reulting om anpeone djs find the effcta of changes in seta! sosunplins. be ory ¢. Actual return on plan escots 4, Gains and losses 5. Demographic actuarial assumptions include all of the following, except a. Rate of employee turnover 1. Disability and early retirement g,_The proportion of Plan ‘members eligible for benefits 6 Financial actuarial assumptions include all of the following, except a. Future selary 'b. Future medical cost Tax 17, What is the treatment of actuarial gains and losses a. As remensuroments recognized immediately in other SGmprehensive income and eubsequently recycled to profit or loss, vy ae Riacasurements recognized immediately ix roSt ot loss. co me Sineasurements recognized immediately in retained earnin im © As Terehensive income and permanently ‘excluded from profit oF lose.‘b.Actuarial gains and losses.may arise from all of thy following, except 7 Unexpected high oF low rate of employee turnover &. Unexpected Isamptions concerning bencit pavin 2 Change in discount rate i ent value of the defined henefe n, amendment beSment or settlement of the benefit plan *° ‘9, What is the treatment of gain o loss on the settlement (of bonenit plan? 4. AAs separate component of income frunt continu operations a b. As component of disvontinued operation. jed in determining employee : 4. As component of other comprehensive income, 10. What i the transitional effect ofthe application of Ink uramortad pat sevice cx and newer setuaral gain and lose? 8. Unamortized past service cost and actuarial gain and less are recognized currently in profit or los b. Unamortized past service cost and actuarial gain and loss are recognized currently in other comprehensive c Unamortized past sorvico cost is recognized retrospectively in retained earnings and actua in and loss are recognized currently in profit or loss, al gain and loss are recognized retrospectively in retained earnings, ANSWER 11-38 ea na aa ge 10. 4 apres 210 QUESTION 11-39 Multiple choice (IFRS) 1. An entity contributes to an industrial pension plan that provided a pension arrangement for’the employees. Farge number of other employers also contribute to the pension plan, and the entity makes contributions in Pespect of each employee. Thoso contributions are Kept separate from corporate assets and are used together with fany investment income to purchase annuities for retired ‘employees. The only obligation of the entity ie to pay the ‘annual contributions. This pension scheme is & @. Defined contribution plan only, 4 Defined benefit plan only 2.An entity has decided to improve its defined benefit An son anme. The benefit payable will be determined Foie ee 6d veare of service rather than 65 Years oy rere As a reoult, the defined benefit pension Peay itl increase, ‘The average remaining service Hability wa gmployees is 10 yoars. How should the lives oe inthe pension ibility be tested inthe finaneia! statements? 1a. ‘The past service cost should be charked against retained profit 7 ‘of Toss for the year. The past service cost chould be spread ov remaining working lives of the omployees. 4d. The past service cost should not be recognized © rer the 43, Which ofthese events will not cause a change in a defined benefit obligation? ‘a. Change in mortality rate or the proportion of Shaleos taking early. retirement by arom ce eatimated salaries or benefits that will fecur in the future ge Shanes ie ‘catimated employee turnover, adefined benefit tribution plan: The net pense {atl fetsed compared to the net before the ames net efor the amendment. How should the ‘The entity d b The entity does not recognize a gain ‘The entity recognizos a gain to’bs amortized ove the i Ig Service period of the employees. © ently recognizes the gain ‘he onty recognize te gins component of other 5. Under which ‘category should lum} sotatial gains be Scecunted foe?" “um Denett and accounted for under defined benefit plans. be vb, Thm sm bone shosid be esunted fr der soe ym employee benefits, Actuarial gains shoul serounted Se unier defined berett plane c. Lump sum benefit should be accounted for under Kefised benefit plans, Actuarial gaino should be SScounted for under defined contribution plans a, Eamp sum beneft should be accounted for under short, ice employe bane, Acuna evn goal be form ome far undor defined contribution plans ANSWER 11-39 QUESTION 11-40 Multiple choice (AA) 1 Which of the following statements characterizes defined contribution plans? Defined contribu a dppropriate amount of periodic contribution. riod e HeerRtment rick is borne by the employer &. Contributions are made in equal amounts by employer and employees. a2 ‘2 Which of the foulowing statements characterizes detincs Denefit plans? a. Defined benefit plans are comparatively simple in Construction and raise few accounting iseuce fo employers, ¢. Retirement benefits depend on how well pension fo fssets have been managed. a. The invontmont nk is borne by the employee 5. Which of the following components should not be included Fre ctlation of nee pension cost recognized fr a period in tRe cuaployer sponsoring a defined benefit plan? a. Current service cost B. Past service cost 4 In a defined benefit plan, the process of funding refers % ‘a. Determining the defined benefit obligation f Determining the accumulated: benefit obligation. claims. 4. Ba ining the amount thet might be reported for pension expense 5. The defined benefit obligation is the measure of pension. obligation that squires pension expe: the bacis of the plan formula applied to ‘Service to date and based on exi ce. Hesquires the longest possible period for smeximize the tax deduction. a. meer Vanctioned under international Financia’ .etandards for reporting the curreat service TeEt component of pension expense. ms6 In computing the current service cont componc pension expense a. The accumulated benefit oblizition provide The sgzumisieg of the pono obsitina Concern basis. b. Am entity should employ actuarial funding of wth ae Sport pension expense that best reflects the cos ‘emplurees ene ensation Kevel pero meant pr ps istic mlvastre of fosent pension obligation and exper a. All of these 7, When an entity amends pension plan, past serviee vast should be 1. Treated as a prior period adjustment bees future periods are benefited. * " b, Amortized over the remaining service per employees. tod of Recorded in other comprehensive incom 4 Reported ao an expense in the perso i : lan is 8, Vested benefits ‘a. Usually require a certain minimum number of of service. the employee is entitled to reveive ev b. Are those tI if fired, c. Are not conting plan. 6. A pension liability is reported when Jzent upon addicional serviee of plan assets. b. The accumulated benefit obligation 18 under the leas than the fair value of plan asscts. ox sued for the period is greater od. ‘The pension expense repor tha the fanding amount for the same Per 4g. Cumulative other comprehensive income ¢ fair value of plan assets. m6 ods the 10.A pension asset 1s reported when 2. The accumulated benefit obligation value of plan assets. gaan as b The accumulated benefit ebligation exceeds th ‘ale of plan anges but a past servis cas ext= e. Plan assote afer value exoced the aecumulstet benefit obligation obligation. ANSWER 11-40 b Be boad dad co fa a 1d QUESTION 11-41 Multiple choice (PAS 26) 1. The ropert of a defined contribution plan shall contain lable far benefits L.A sstatement of net assets II, A description of the funding policy a. Tonly b._ I only d. Either To 2. The report of a defined benefit plan shall contain assets available for benefits IA statement showing net red benefits and the the present value of promist resulting excess or deficit Th, Acstatementof net assets available for benefits neha wf promised beneit= ‘a note disclosing the present vale only Monly Both I and il aS8, Which of the following may be disclosed in the financial report of a defined benefit plan but would not be show in the financial report of a defined contribution plan?” Government bonds held benefits c. Employee contributions 4. Employer contributions 4 Retirement benefit plan investments shall be carried at Pilacal cost, cc. Amortized cost dd. Value in use 45-In sare circumetances, when a retirement benefit plan fine attributes of both defined contribution and defined benefit plan, the plan is deemed b. Defined contribution plan ¢. Neither defined benefit plan nor defined contribution plan 4d. Both defined benefit plan and defined contribution plan ANSWER 11-41 QUESTION 11-42 Multiple choice (AICPA Adapted) 1 The service cost component af the net periodic pension cost is measured using the ie _ 4. Unfunded ascamlsted bene obligation Unfunded vst benbt oie SG AER eer on planta 2, Interest enst included in the net pension cost recognized under a defined benefit plan represents the ‘a. Amortization of the discount on unrecognized past serview cost. . Inerease in the fair value of plan assete due to the passage of time. is 4. Shortage between the interest income and actual return on plan assets. 3, An unfunded accrued pension cost under @ defined ‘benefit plan represents the amount that the contributions to the plan. b, Cumulative net pension vested benefit obligation Vested benefit obligation exceeds fe coat accrued exceeds 1 value of plan butions to the 4.Am employer's obligation for postretirement health sept that are expected o be provided to an employee uot be fly acerued be the date the efits $. Employee retires 2 Benefit are utilized 4. Bonefita are paid aade fined benefit plan mus Hat Wot fae renee ization, Obligation eee between the accumulated heneha ind the projected bene vies anc rojected benefit obligation. 4 6. Which of the following terms includes concerning projeeted chanes in future cee when the pension compensation level? eee a. Service cost rvice cost and accumulated benefit obligation ice cost, projected benefit obligation accumulated benefit obligation 7. An entity with a defined benefit plan must disclose al the following, except a. The funded status of the pension plan showing, separately the assets, current liabilities and noncurrent liabilities recognized b. Assumed discount rate and rate of compensation increase, d_ponsion ‘income statement 4d. The amount of the net periodic benefit cost with the components shown separately. 8, Which of the following defined bencit ian Should be made inthe rte yfnnnc see 1, The amount of net periodic persion enst for the peri Ti, The fair value of plan asces = a. Tonly b. Tonly @, Neither [nor I 9. Which of the following benefit plan? must be disclosed for defined 1, Assumed diseotnt rate I, Expected rato of return on plan assets Ii Rate of compensation inerense eyes ‘only © [and Il 4. il only, 10, Which of the fellowing disclosures is not required with respect to @ defined benefit plan? fa. A desription of the plan B. The amount of pension expense by component ce. The weighted average discount rat ANSWER 11-42 Lhe Gb Qe Te aa 8 eC aa of 8 sd 10. 4 29