lOMoARcPSD|13073205
SOL. MAN. Chapter 6 Employee Benefits (PART 2) 2021
Intermediate Accounting 2 (Saint Louis University Philippines)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 1
Chapter 6
Employee Benefits (Part 2)
PROBLEM 1: TRUE OR FALSE
1.TRUE
2.FALSE
3.TRUE
4.FALSE
5.TRUE
6.FALSE – only the net defined benefit liability (asset) is
recognized in the accounts and in the financial
statements. The PV of DBO is disclosed only.
7.FALSE
8.TRUE
9.TRUE
10.TRUE
PROBLEM 2: MULTIPLE CHOICE – THEORY
1. B
2. D
3. A
4. B
5. A
6. D
7. C – the event is “curtailment,” which results in past
service cost. Past service cost can be either positive
(increase in PV of DBO) or negative (decrease in PV of
DBO). In the problem, it is the latter case.
Choice (a) is correct. The termination benefits paid to the
terminated employees increase the termination benefits
expense for the period.
Choice (b) is correct (see discussion above).
Choice (d) is correct. A decrease in PV of DBO either
decreases the net defined benefit liability or increases
the net defined benefit asset.
8. C
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 2
Side note: The IASB opined that “early retirements” are
accounted for as post-employment benefits rather than
termination benefits because the benefits pertain to
employee service rather than the employer’s act of
terminating the employee.
9. D
10. D
PROBLEM 3: EXERCISE
Requirement (a):
Fair value of plan assets
Jan. 1
2,100,000
Benefits
Return on plan assets
270,000 450,000
paid
Contributions to the
480,000
fund
2,400,0
Dec. 31
00
Benefits
paid
Actuarial
gain
Dec. 31
PV of defined benefit obligation
2,400,
Jan. 1
000
450,
600, Current service
000
000 cost
300,000 Past service cost
15,
288,
Interest cost
000
000
3,12
3,000
FVPA
PV of DBO
Net defined benefit
liability
Jan. 1,
20x1
2,100,
000
2,400,
000
(30
0,000)
Dec. 31,
20x1
2,400,
000
3,123,
000
(72
3,000)
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 3
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
288,000
(252,000)
36,000
Defined benefit cost recognized in profit or
loss
936,000
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)
(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):
20
Net defined benefit liability
x1
Cash
(15,000)
(18,000)
-
480,000
480,00
0
to record the contributions to the
fund
De
c.
31,
20
x1
Retirement benefits expense
Remeasurement of def.
benefit liab.
Net defined benefit liability
936,000
to record the defined benefit
cost
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
33,000
903,00
0
lOMoARcPSD|13073205
Page | 4
Requirement (d):
Report form:
300,00
0
(480,000
)
903,00
0
723,0
00
Net defined benefit liability, beg.
Contributions to the fund
Defined benefit cost
Net defined benefit liability, end.
OR
T-account form:
Net defined benefit
liability
300,000
Contributions to the
fund
Dec. 31
480,0
00
723,0
00
903,000
Jan. 1
Defined benefit
cost
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL
1. C
Fair value of plan assets
Jan. 1
360,000
Benefits
Return on plan assets
80,000 120,000
paid
Contributions to the
480,000
fund
800,00
Dec. 31
0
2. B
Jan. 1
Return on plan
assets
Contributions to the
fund
Fair value of plan assets
234,000
Benefits
24,000
79,000
paid
120,000
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 5
299,000
Dec. 31
3. C
PV of defined benefit obligation
280,0
Jan. 1
00
120,0
50,0 Current service
00
00 cost
30,8
Interest cost
00
50,0
00
190,
800
Benefits
paid
Actuarial
gain
Dec. 31
4. A
Benefits
paid
Dec. 31
PV of defined benefit obligation
130,0
Jan. 1
00
110,0
25,0 Current service
00
cost
00
15,6
Interest cost
00
50,00
Actuarial loss
0
110,6
00
5. A
Fair value of plan assets
Jan. 1
Return on plan
assets
Contributions to the
fund
960,000
70,000
290,000
Benefits
paid
1,100,0
00
Dec. 31
360,000
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 6
Benefits paid
PV of defined benefit obligation
1,200,0
Jan. 1
00
290,000 260,000 Current service cost
Actuarial gain
28,000
Dec. 31
1,250,0
00
108,000
Interest cost
Jan. 1, 20x1
FVPA
PV of DBO
Net defined benefit
liability
96
0,000
1,200
,000
(240,
000)
Dec. 31,
20x1
1,10
0,000
1,25
0,000
(15
0,000)
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
(b) Interest income on plan assets
(c) Interest on the effect of the asset ceiling
Defined benefit cost recognized in profit or
loss
108,
000
(86
,400)
21
,600
28
1,600
Remeasurements of the net defined benefit liability (asset):
(28
(a) Actuarial (gains) and losses
,000)
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 7
(b) Difference between interest income on plan assets
16,
400
and return on plan assets (86.4K - 70K)
(c) Difference between the interest on the effect of the asset
ceiling and the change in the effect of the asset
ceiling
(1
1,600)
Defined benefit cost recognized in OCI
270
,000
Total defined benefit cost
6. C
Service cost:
(a) Current service cost
(b) Past service cost
(c) (Gain) or loss on settlement
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
-
540,000
450,000
45,000
1,035,00
0
198,000
(178,200
)
19,800
Defined benefit cost recognized in profit
or loss
1,054,80
0
Remeasurements of the net defined benefit liability
(asset):
(a) Actuarial (gains) and losses
(18,000)
(b) Difference between interest income on
70,200
plan assets
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
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 8
asset ceiling
52,200
Defined benefit cost recognized in OCI
1,107,0
00
Total defined benefit cost
7. B
Final monthly salary level (60K x 102%(a))
Multiply by: Years of service (from 50 to 60 yrs. old)
73,140
11
804,54
0
Lump-sum retirement benefit
(a)
ten (10) times
OR
Year
Age
Salary
= previous balance x
102%
1
2
3
4
5
6
7
8
9
10
11
50
51
52
53
54
55
56
57
58
59
60
60,000
61,200
62,424
63,672
64,946
66,245
67,570
68,921
70,300
71,706
73,140
OR
60,000 x FV of 1 @2%, n=11; 60,000 x 1.218994 = 73,140
Final monthly salary level
Multiply by: PV of 1 @10%, n=10
Current service cost in Yr. 1
(b)
(b)
73,140
0.385543
28,199
From end of Yr. 1 to end of Yr. 11 = 10
8. A
Final monthly salary level
Multiply by:
73,140
5
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
Page | 9
365,700
0.564474
206,428
Accumulated benefits to date
Multiply by: PV of 1 @10%, n=6 (c)
Lump-sum retirement benefit
(c)
From end of Yr. 5 to end of Yr. 11 = 6
Alternative solution: Long-cut
Interest
Current service
Date
cost
cost(d)
PV of DBO
Jan. 1, 20x1
Dec. 31, 20x1
Dec. 31, 20x2
Dec. 31, 20x3
Dec. 31, 20x4
2,819.86
6,203.70
10,236.10
28,198.64
31,018.50
34,120.35
37,532.38
Dec. 31, 20x5
15,012.95
41,285.62
Dec. 31, 20x6
Dec. 31, 20x7
Dec. 31, 20x8
Dec. 31, 20x9
Dec. 31,
20x10
Dec. 31,
20x11
20,642.81
27,248.51
34,968.92
43,960.93
45,414.19
49,955.60
54,951.16
60,446.28
28,198.64
62,037.00
102,361.05
150,129.54
206,428.1
2
272,485.11
349,689.23
439,609.32
544,016.53
54,401.65
66,490.91
664,909.09
66,490.91
73,140.00
804,540.0
0
Benefit
entitlement
PV of 1 @ 10%,
n=10 to 0
(d)
Current
service cost
73,140
0.38554329
28,198.64
73,140
0.42409762
31,018.50
73,140
0.46650738
34,120.35
73,140
0.51315812
37,532.38
73,140
0.56447393
41,285.62
73,140
0.62092132
45,414.19
73,140
0.68301346
49,955.60
73,140
0.75131480
54,951.16
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 10
73,140
0.82644628
60,446.28
73,140
0.90909091
66,490.91
73,140
1.00000000
73,140.00
804,540
9. A
10. C 30 employees x 50,000 = 1,500,000
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 11
PROBLEM 5: CLASSROOM ACTIVITY
1. Solution:
PV of defined benefit obligation
4,645,541
239,152
250,395
Benefits paid
-
Actuarial gain
646,794
4,488,29
4
Dec. 31, 20x1
Jan. 1, 20x1
Current service cost
Interest cost *
Actuarial loss
* (4,645,541 x 5.39% discount rate at the beginning of 20x1) =
250,395
2. Solution:
Fair value of plan assets
Jan. 1
Return on plan assets
1,176
,732
11,
672
Contributions to the
fund
-
Benefits
paid
474,934
1,663,3
38
Dec. 31
3. Solution:
Present value of defined benefit obligation
(DBO)
Fair value of plan assets (FVPA)
Net defined benefit liability – Deficit
20x1
4,488,2
94
1,663,3
38
2,824,
956
20x0
4,645,5
41
1,176,7
32
3,468,
809
4. Solution:
Service cost:
(a) Current service cost
(b) Past service cost
(c) (Gain) or loss on settlement
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
239,152
-
lOMoARcPSD|13073205
P a g e | 12
239,152
Net interest on the net defined benefit liability
(asset):
(a) Interest cost on the defined benefit obligation
(b) Interest income on plan assets (given)
(c) Interest on the effect of the asset ceiling
250,395
(77,179)
173,216
Defined benefit cost recognized in profit or
loss
412,368
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 (77,179 - 11,672)
(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
(646,794)
65,507
(581,287)
(168,919
)
Total defined benefit cost
5. Solution:
Net defined benefit liability (asset) - Jan. 1, 20x1
3,468,809
Contributions
(474,934)
Defined benefit cost
Net defined benefit liability (asset) - Dec.
31, 20x1
(168,919)
2,824,956
6. Solution:
Dec.
31,
20x1
Net defined benefit liability
(squeeze)
Retirement benefits expense
Remeasurement of
643,8
53
412,3
68
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
581,28
lOMoARcPSD|13073205
P a g e | 13
defined
benefit pension plan
Cash (contributions)
7
474,93
4
7. D
 Choice (a) is incorrect. No retirement benefits were
paid during the year.
 Choice (b) is incorrect. The total salaries paid during
20x1 decreased. Refer to “Annual covered payroll” in
the “Summary of Valuation Results.”
 Choice (c) is incorrect. ABC Co.’s retirement plan
provides for a lump sum payment only. It does not
provide for annual pension payments.
8. A
 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.” (PAS 19.8)
 (See #14 ‘Forfeiture of benefits’ in ‘EXCERPT 6 OUTLINE OF BASIC PLAN PROVISIONS’)


Choices (b) and (c) are incorrect. Amendment of
retirement plan results to either positive or negative
past service cost.
Choice (d). Death or disability of an employee does
not relieve the company of its obligation to pay
retirement benefits. See #9 in “Outline of Basis Plan
Provisions.”
9. D (See #16 and #17 of ‘EXCERPT 6 - OUTLINE OF
BASIC PLAN PROVISIONS’)
10. B (See ‘STATISTICAL DISTRIBUTION OF ELIGIBLE
MEMBERS’)
11. D
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 14
12. A
 Information from excerpts:
Number of male employees: 2
Average age of male employees: 51.5




51.5 = (65 age of Mr. A + X age of Mr. B) ÷ 2
51.5 x 2 = (65 + X)
103 – 65 = X
X = 38
13. B: 4 employees (3 + 1) (see highlighted numbers
below.
STATISTICAL DISTRIBUTION OF ELIGIBLE MEMBERS
AS OF DEC. 31, 20X1
AGE
20 &
belo
w
21 25
26 30
31 35
36 40
41 45
46 50
51 55
56 60
61 65
66 &
above
less
than 5
yrs.
5 but
less
than 10
10 but
less
than 15
15 but
less
than 20
20
years
&
above
1
TOTA
L
1
-
1
1
2
1
1
1
1
1
1
1
1
2
1
1
-
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 15
TOTA
L
4
1
3
-
1
9
14. D
ABC’s retirement policy:
“Normal retirement date: The normal retirement date of
each member shall be the first day of the month
coincident with or next following his attainment of age
sixty (60) with at least ten (10) years of Credited
Service.”
15. A – See #8 in “Outline of Basic Plan Provisions.”
16. D – There was an actuarial gain during the year. This
has decreased the PV of DBO.

Choice (b) is a correct statement. The ₱65,507
remeasurement is a debit (refer to the computation of
defined benefit cost in #4 above).
17. B
18. D – The actuary’s opinion shows the following:
RE: ABC CO. RETIREMENT PLAN (PAS 19 VALUATION)
(Participant to the ABC Co. Multiemployer Retirement Plan)
Valuation Date – December 31, 20x1
19. D – best answer. See discussion below:
 Choice (a) is incorrect. Same discount rate is used in
computing for interest income on FVPA and interest
expense on PV of DBO.
 Choice (b) is incorrect. An employee can estimate
his/her retirement pay using the plan formula, which
is “1 month final salary x No. of service years.”
 Choice (c) is incorrect. No retirement benefits were
paid during 20x1.
20. C (27,000 x 102%) = 27,540
21. D
Solution:
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 16
Date of birth
Normal retirement age
Date of retirement
Mon
th
8
Day
Year
14
8
1980
60
2040
14
ABC Co.’s retirement policy:
“Normal retirement date: The normal retirement date of
each member shall be the first day of the month
coincident with or next following his attainment of age
sixty (60).”
22. A
Solution:
Mon
th
Da
y
1
1
1
1
Date of employment as "Regular"
employee
Minimum service years
Ye
ar
200
1
10
20
11
23. A
Solution:
6
1
Date of birth
-6
0
-1
0
Yea
r
200
1
195
1
50
Age at date of employment
50
Mon
th
Day
Year
6
1
6
1
2001
10
201
1
Month Day
Date of employment as "Regular"
employee
Date of employment as "Regular"
employee
Minimum service years
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 17
ABC’s retirement policy:
“Normal retirement date: The normal retirement date of
each member shall be the first day of the month
coincident with or next following his attainment of age
sixty (60) with at least ten (10) years of Credited
Service.”
24. C
Solution:
Da
y
Month
Date of employment as "Regular"
employee
6
1
-9
-3
-1
0
Date of birth
Age at date of employment
Date of birth
Normal retirement age
Date of retirement
49
Mon
th
9
Day
Year
1
1951
60
2011
9
1
Mont
h
Day
9
1
Date of employment as "Regular"
employee
-6
-1
Service years
3
0
Date of retirement
No. of service years
Yea
r
200
1
195
1
50
Yea
r
201
1
200
1
10
10 yrs. and 3
mos.
Choice (a) is incorrect because, on June 1, 2011, Ms.
Munda has not yet reached the age of 60.
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 18
Date of retirement
Mon
th
6
Day
Year
1
Birth date
-9
-1
Age at date of retirement
-3
0
Age on June 1, 2011
2011
1951
60
59 yrs. and 3
months
Choice (b) is incorrect because, according to ABC’s
retirement plan, an employee only needs to reach the age
of 60 and has rendered at least 10 years of service to be
entitled to normal retirement.
Choice (d) is incorrect because the dates are irrelevant.
25. A
Solution:
Date of employment
Date of birth
Age at date of employment
Date of employment
No. of service years before
reaching the
age of 60
Date of retirement
Mon
th
1
-12
-11
Day
1
-31
-30
Year
1985
-1944
41
40
Mon
th
1
Day
Year
1
1985
20
1
1
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
2005
lOMoARcPSD|13073205
P a g e | 19
26. B
Solution:
Final monthly salary level (600K ÷ 12)
Multiply by: Service years
50,000
20
Lump sum retirement benefit
1,000,00
0
27. C
Benefit earned for services rendered in
20x1
50,000
Multiply by: PV of 1 @ 4.64%a, n=3
0.87278
Current service cost
43,639
a
4.64% = Discount rate at December 31, 20x1.
b
No. of years before retirement
Mon
th
Expected normal retirement
date
End of reporting period
No. of years before retirement
Day
1
-12
-11
Year
1
-31
-30
2005
-2001
4
Day
Year
3
28. B
Solution:
Month
Date of employment as
"Regular"
employee
Date of birth
Age at date of retirement
1
1
1990
-12
-11
-31
-30
-1944
46
Age at date of employment
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 20
45
Mon
th
Day
Year
1
1
1990
Date of employment as "Regular"
employee
Service years before reaching the
age of 60
15
1
Date of retirement
Date of retirement
End of current reporting period
Mon
th
1
-12
-11
No. of years before retirement
1
Day
1
-31
-30
200
5
Year
2005
-2001
4
3
Current salary level - Dec. 31, 2001
Multiply by: (Salary level in 2002)
Multiply by: (Salary level in 2003)
Multiply by: (Salary level in 2004)
Future salary level - Jan. 1, 2005
Multiply by: No. of service years
Lump sum retirement benefit
30,00
0
102%
102%
102%
31,83
6.24
15
477,5
44
29. C
Solution:
(40,000 x PV of 1 @ 4.64%, n=22*) = 14,747
*(60 age of normal retirement – 38 current age) = 22 no.
of years before retirement
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 21
30. A
Solution:
Month
1
-7
-6
Day
1
-1
0
Year
2002
-1990
12
Years of service
Percentage of benefit (see 'OUTLINE OF BASIC
PLAN PROVISIONS' #8)
11.5
55%
Final monthly salary level (240K ÷ 12)
Multiply by: Years of service
Multiply by: Percentage of benefit
20,000
11.5
55%
Termination benefits
126,500
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 22
PROBLEM 6: FOR CLASSROOM DISCUSSION
1. Solution:
Fair value of plan assets
Jan. 1
240,000
Benefits
Return on plan assets
20,000
60,000
paid
Contributions to the
220,000
fund
420,00
Dec. 31
0
2. Solution:
PV of defined benefit obligation
200,000 Jan. 1
Benefits
paid
60,000
40,000
24,000
30,000
Dec. 31
Current service cost
Interest cost (200K x
12%)
Actuarial loss
234,000
3. Solutions:
Requirement (a):
Present value of defined benefit
obligation, Jan. 1
Fair value of plan assets, Jan. 1
Deficit - Net defined benefit liability Jan. 1
1,800,000
1,500,000
300,000
Requirement (b):
PV of defined benefit obligation
1,800,0
Jan. 1
00
Benefits
75,0
450,0 Current service
paid
00
00 cost
216,0
Interest cost
00
Actuarial
10,0
gain
00
Dec. 31
2,381,0
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
lOMoARcPSD|13073205
P a g e | 23
00
Fair value of plan assets
1,500,000
Benefits
Return on plan assets
180,000
75,000
paid
Contributions to the
45,000
fund
1,650,0
Dec. 31
00
Jan. 1
Present value of defined benefit obligation,
Dec. 31
Fair value of plan assets, Dec. 31
Deficit - Net defined benefit liability Dec. 31
2,381,000
1,650,000
731,000
4. Solution:
Service cost:
(a) Current service cost
(b) Past service cost
(c) (Gain) or loss on settlement
Net interest on the net defined benefit liability
(asset):
(a) Interest cost on the defined benefit obligation
(1.6M x 10%)
(b) Interest income on plan assets (1.4M x 10%)
(c) Interest on the effect of the asset ceiling
400,000
200,000
40,000
640,000
160,000
(140,000)
20,000
Defined benefit cost recognized in profit or
loss
Remeasurements of the net defined benefit
liability (asset):
(a) Actuarial loss
(b) Difference between interest income on plan
assets
and return on plan assets (140,000 - 90,000)
(c) Difference between the interest on the effect of
the asset
ceiling and the change in the effect of the asset
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)
660,000
10,000
50,000
-
lOMoARcPSD|13073205
P a g e | 24
ceiling
Defined benefit cost recognized in OCI
Total defined benefit cost
60,000
720,000
Downloaded by Riku Fujiwara (riku.fujiwara07@gmail.com)