Chapter 19
Chapter 19
10
(c) $9,840 = ($255,000 + $140,400 - $297,000) X 10%; $39,540 = ($255,000 + $140,400) X 10%; $29,700 = $297,000 X 10%
(d) $5,940 = $29,700 – ($297,000 X 8%)
EXERCISE 19.11 (CONTINUED)
e. The plan surplus/deficit and the balance sheet account should be the same amount because
the same items and amounts that affect the DBO and plan assets also affect the pension
expense and contribution journal entries to the net defined benefit liability/asset account. The
exception to this statement is the amount of benefits paid, but this affects neither the net
amount of the plan surplus/deficit, nor the balance sheet account.
If you review all the other items that affect the DBO and the plan assets and identify them as
debits and credits, you will see that the two entries made to the net defined benefit
liability/asset contain the same debits and credits.
EXERCISE 19.11 (CONTINUED)
f. The only difference if Antoine Corp. reported under IFRS instead of ASPE is that the
remeasurement loss would be reported in OCI instead of being included in pension expense
on the income statement. That is, its total pension expense would be $219,180 - $5,940 =
$213,240, and it would have a loss of $5,940 reported in OCI. Comprehensive income would
remain the same, as the remeasurement loss is still included, but as a component of OCI
instead of net income. Under ASPE, the past service cost would be considered a
remeasurement that must be presented separately on the income statement. Aside from the
corresponding changes in retained earnings and accumulated other comprehensive income,
everything else would remain the same on the balance sheet.
LO 3,4,5,6,8 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting
EXERCISE 19.12
c. (continued)
d. Income Statement:
Pension expense $93,000
Balance Sheet:
Long-term liabilities
Net defined benefit liability $348,000
Note X: The company sponsors a defined benefit pension plan covering the following group
of employees and providing the following benefits.
For the year ended December 31, 2020, the net expense recognized for the company’s
pension plan is $93,000. This includes an asset remeasurement loss of $1,000. The present
value of the defined benefit obligation at December 31, 2020, is $1,146,000 and the market
value of the fund assets is $798,000. This results in a plan deficit of $348,000. The effective
date of the most recently completed actuarial valuation of the defined benefit obligation was
____.
EXERCISE 19.12 (CONTINUED)
e. If Griseta Limited also had an actuarial valuation of its plan prepared for funding purposes,
and had chosen instead to use a funding valuation accounting policy for reporting
purposes, this would have affected the pension results as follows:
Pension expense in parts (a) and (b) would have been reduced because the net
interest/finance cost would have been reduced by 9% of ($1,000,000 - $875,000) or
$11,250. Pension expense would have been $93,000 – $11,250 = $81,750.
In part (c), the plan deficit at January 1, 2020 and the net defined benefit liability at the
same date also would have been reduced by $125,000 to $275,000 because the DBO was
only $875,000, not $1 million. The DBO, the plan deficit, and the net defined benefit
liability would also be reduced at December 31, 2020 because of the lower opening
balance and reduced interest cost recognized in expense.
In part (d), the pension expense on the income statement, as indicated above, would be
reduced to $81,750 and the balance sheet liability account would also be reduced by the
total of the $125,000 lower opening balance and the $11,250 reduced pension expense
recognized in the year.
In part (d), an accounting policy note would be required to explain that the company has
chosen to measure its defined benefit plan obligation using a funding basis valuation.
LO 3,4,5,7 BT: AP Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
EXERCISE 19.13
a. IFRS
b. ASPE
LO 5,8 BT: AP Difficulty: S Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting
EXERCISE 19.14
e. There is no need to reconcile – these two have the same balance because the inputs that
affect the balance of each are identical.
PROBLEM 19.3
$94,139
e. Journal entries:
2020
Pension Expense................................................ 36,800
Remeasurement Loss (OCI)1.............................. 6,900
Net Defined Benefit Liability/Asset.............. 43,700
To record pension expense
e. (continued)
2021
Pension Expense................................................449,190
Net Defined Benefit Liability/Asset.............. 449,190
To record pension expense
2022
Pension Expense................................................ 94,139
Remeasurement Loss (OCI)2..............................122,521
Net Defined Benefit Liability/Asset.............. 216,660
To record pension expense
Note: the remeasurement gains and losses taken to OCI do not get
recycled into net income at a later date.
f. (continued)
g (continued)
$ 216,660
PROBLEM 19.3 (CONTINUED)
g. (continued)
Net Defined
Pension Benefit
Expense Cash Liab/Asset DBO Plan Assets
Opening balance 0 460,000 Cr. 460,000 Dr.
Although not required, all work sheets under ASPE have been provided. Pension expense can be
calculated as in the “Pension Expense” column in each work sheet.
PROBLEM 19.3 (CONTINUED)
g. (continued)
ASPE – 2021 General Journal Entries Memo Record
Pension Cash Net Defined DBO Plan Assets
Expense Benefit
Liab/Asset
Net Defined
Pension Benefit
Expense Cash Liab/Asset DBO Plan Assets
Opening balance 343,390 Cr. 972,440 Cr. 629,050 Dr.
h.
2021
Defined benefit obligation, 1/1/21 $281,710
Interest cost ($281,710 x 7%) 19,720
Current service cost 47,250
Benefits paid (26,000)
DBO, 12/31/21 $322,680
a. (continued)
2021 (continued)
2022
Defined benefit obligation, 1/1/22 $322,680
Interest cost ($322,680 x 7%) 22,588
Current service cost 52,500
Benefits paid (28,000)
DBO, 12/31/22 $369,768
c. At January 1, 2020, note that the balance of the net defined benefit
liability on the opening SFP will be equal to the plan surplus or
deficit at that date. The net defined benefit liability, therefore, was
$175,000 - $165,000 = $10,000 cr.
2020
Defined benefit obligation, 1/1/20 $175,000
Past service cost, 1/1/20 78,000
253,000
Interest cost ($253,000 x 7%) 17,710
Current service cost 35,000
Benefits paid (24,000)
DBO, 12/31/20 $281,710
2021
Defined benefit obligation, 1/1/21 $281,710
Interest cost ($281,710 x 7%) 19,720
Current service cost 47,250
Benefits paid (26,000)
DBO, 12/31/21 $322,680
2021 (continued)
2022
Defined benefit obligation, 1/1/22 $322,680
Interest cost ($322,680 x 7%) 22,588
Current service cost 52,500
Benefits paid (28,000)
DBO, 12/31/22 $369,768
d. (continued)
Note: the remeasurement gains and losses taken to OCI do not get
recycled into net income at a later date.
2020: 10,000 cr. + 119,160 cr. – 1,650 dr. – 44,000 dr. = 83,510 cr.
2021: 83,510 cr. + 53,096 cr. + 1,982 cr. – 44,000 dr. = 94,588 cr.
2022: 94,588 cr. + 59,122 cr. +/–0 – 44,000 dr. = 109,710 cr.
e. In part (b) under ASPE, all the changes in the DBO and plan
assets get reported in net income, while under IFRS, the changes
in the DBO and plan assets get split between the expense
recognized in net income and the remeasurements recognized in
OCI. Under IFRS, the remeasurements that are items likely to
change (reverse) in the future are recognized in OCI, and not
subsequently recycled to net income. ASPE does not recognize
OCI in its financial statements, but does require disclosures of
remeasurements similar to IFRS, although what is included in
“remeasurements and other items” under ASPE differs from what is
reported in OCI under the IFRS standard.
e. (continued)
f. As indicated in part (e), all the changes in the DBO and plan assets
under ASPE get reported in net income, while under IFRS, the
changes in the DBO and plan assets get split between the expense
recognized in net income and the remeasurements recognized in
OCI. However, the IFRS net income amount plus the OCI-reported
amount add up to the same amount as is included in expense in
ASPE’s net income. As a result, the net defined benefit
liability/asset reported on the SFP and the plan surplus or deficit
are exactly the same. Therefore, the measure is the same.
LO 3,4,5,7,8 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting
PROBLEM 19.5
a. IFRS
Pension Expense
2020 2021 2022
Current service cost 12,000 13,000 14,500
Net interest/finance cost (benefit) 0 (40) (405)
8% x ($75,000 - $75,000); 8% X ($93,000 –
$93,500); 8% X ($109,440 - $114,500)
Past service cost 75,000 0 0
Total 87,000 12,960 14,095
Plan Assets
Opening balance 0 93,500 114,500
Contributions ($75,000 original + $12,000) 87,000 15,000 16,000
Actual return 6,500 10,000 8,000
Benefits paid 0 (4,000) (5,000)
Ending balance 93,500 114,500 133,500
Plan Assets
Opening balance 0 93,500 114,500
Contributions ($75,000 + $12,000) 87,000 15,000 16,000
Actual return 6,500 10,000 8,000
Benefits paid 0 (4,000) (5,000)
Ending balance 93,500 114,500 133,500
Please see the attached tables that set out the results of using IFRS and of
using ASPE. The major difference between these methods (assuming
an ASPE accounting policy choice of an accounting basis measure of
the defined benefit obligation) is where some components of the
pension cost are reported. In our case under IFRS, the difference
between the return on plan assets at the discount rate and the actual
return earned on the plan assets is recognized in OCI rather than in net
income as it is under ASPE. The items recognized in OCI under IFRS
are due to events that may reverse in the future and as a result, should
not affect net income and earnings per share reported. Under ASPE, all
events that change either the plan assets or the defined benefit
obligation must be recognized and reported in net income. Other
comprehensive income is not a feature of financial statements under
ASPE. In addition, under ASPE, the past service cost would be
considered a remeasurement that must be presented separately on the
income statement or disclosed in the notes to the financial statements.
c. (continued)
Under ASPE, we do have an accounting policy choice, and I have used the
policy that results in the ASPE reports being close to the IFRS reports,
as you requested. The company could choose to use an actuarial
measure for its defined benefit obligation that is prepared for funding
purposes. Invariably however, this measure of the DBO is lower than
the measure of the DBO for accounting purposes.
While the accounting measure of the DBO would have the effect of
increasing the plan surplus and the pension asset reported on our
balance sheet, and reducing the net interest/finance cost component
of the pension expense, these numbers would not correspond as well
with those reported under IFRS.