Accounting - Chapter 6

PROBLEM 2: MULTIPLE CHOICE – THEORY 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. B D A B A D C C D D PROBLEM 3: EXERCISE Requirement (a): Jan. 1 Return on plan assets Contributions to the fund Benefits paid Actuarial gain Dec. 31 Fair value of plan assets 2,100,000 270,000 450,000 Benefits paid 480,000 2,400,000 Dec. 31 PV of defined benefit obligation 2,400,000 Jan. 1 450,000 600,000 Current service cost 300,000 Past service cost 15,000 288,000 Interest cost 3,123,000 FVPA PV of DBO Net defined benefit liability Jan. 1, 20x1 2,100,000 2,400,000 (300,000) Dec. 31, 20x1 2,400,000 3,123,000 (723,000) Requirement (b): Service cost: (a) Current service cost (b) Past service cost (c) (Gain) or loss on settlement 600,000 300,000 900,000 Net interest on the net defined benefit liability (asset): (a) Interest cost on the defined benefit obligation (2.4M x 12%) (b) Interest income on plan assets (2.1M x 12%) (c) Interest on the effect of the asset ceiling Defined benefit cost recognized in profit or loss Remeasurements of the net defined benefit liability (asset): (a) Actuarial (gains) and losses (b) Difference between interest income on plan assets and return on plan assets (252K - 270K) 288,000 (252,000) 36,000 936,000 (15,000) (18,000) (c) Difference between the interest on the effect of the asset ceiling and the change in the effect of the asset ceiling Defined benefit cost recognized in OCI (33,000) Total defined benefit cost 903,000 Requirement (c): 20x1 Dec. 31, 20x1 Net defined benefit liability Cash 480,000 Retirement benefits expense Remeasurement of def. benefit liab. Net defined benefit liability 936,000 to record the contributions to the fund to record the defined benefit cost Requirement (d): Report form: Net defined benefit liability, beg. Contributions to the fund Defined benefit cost Net defined benefit liability, end. 480,000 33,000 903,000 300,000 (480,000) 903,000 723,000 PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL 1. C Jan. 1 Return on plan assets Contributions to the fund 2. B Jan. 1 Return on plan assets Contributions to the fund 3. C Benefits paid Actuarial gain Dec. 31 4. A Benefits paid Fair value of plan assets 360,000 80,000 120,000 Benefits paid 480,000 800,000 Dec. 31 Fair value of plan assets 234,000 24,000 79,000 Benefits paid 120,000 299,000 Dec. 31 PV of defined benefit obligation 280,000 Jan. 1 120,000 50,000 Current service cost 30,800 Interest cost 50,000 190,800 PV of defined benefit obligation 130,000 Jan. 1 110,000 25,000 Current service cost 15,600 Interest cost Actuarial loss 50,000 Dec. 31 110,600 5. A Fair value of plan assets Jan. 1 960,000 Return on plan assets Contributions to the fund 70,000 360,000 290,000 1,100,000 Benefits paid Dec. 31 PV of defined benefit obligation Benefits paid 290,000 Actuarial gain 28,000 1,200,000 Jan. 1 260,000 Current service cost 108,000 Interest cost Dec. 31 1,250,000 Jan. 1, 20x1 Dec. 31, 20x1 FVPA PV of DBO 960,000 1,200,000 1,100,000 1,250,000 Net defined benefit liability (240,000) (150,000) Service cost: (a) Current service cost (b) Past service cost (c) (Gain) or loss on settlement 260,000 260,000 Net interest on the net defined benefit liability (asset): (a) Interest cost on the defined benefit obligation 108,000 (b) Interest income on plan assets (86,400) (c) Interest on the effect of the asset ceiling 21,600 Defined benefit cost recognized in profit or loss 281,600 Remeasurements of the net defined benefit liability (asset): (a) Actuarial (gains) and losses (28,000) (b) Difference between interest income on plan assets and return on plan assets (86.4K - 70K) 16,400 (c) Difference between the interest on the effect of the asset ceiling and the change in the effect of the asset ceiling - Defined benefit cost recognized in OCI (11,600) Total defined benefit cost 6. 270,000 C Service cost: (a) Current service cost (b) Past service cost 540,000 450,000 45,000 (c) (Gain) or loss on settlement 1,035,000 Net interest on the net defined benefit liability (asset): (a) Interest cost on the defined benefit obligation (b) Interest income on plan assets (c) Interest on the effect of the asset ceiling 198,000 (178,200) - Defined benefit cost recognized in profit or loss 1,054,800 19,800 Remeasurements of the net defined benefit liability (asset): (a) Actuarial (gains) and losses (b) Difference between interest income on plan assets (18,000) 70,200 and return on plan assets (c) Difference between the interest on the effect of the asset ceiling and the change in the effect of the asset ceiling Defined benefit cost recognized in OCI Total defined benefit cost 7. B ( a) ten (10) times 8. A Final monthly salary level 73,140 Multiply by: 5 Accumulated benefits to date 365,700 Multiply by: PV of 1 @10%, n=6 0.564474 Lump-sum retirement benefit 206,428 ( c) From end of Yr. 5 to end of Yr. 11 = 6 9. 52,200 1,107,000 Final monthly salary level (60K x 102% ) 73,140 Multiply by: Years of service (from 50 to 60 yrs. old) 11 Lump-sum retirement benefit 804,540 ( a) - A 10. C Solution: 30 employees x 50,000 = 1,500,000