Chapter 6 Employee Benefits 2
Chapter 6 Employee Benefits 2
Chapter 6
Employee Benefits (Part 2)
2. E
3. A
4. B
5. D
6. B
7. C
8. Solution:
PV of defined benefit obligation
200,000 Jan. 1
Benefits
60,000 40,000 Current service cost
paid
Interest cost (200K x
24,000
12%)
30,000 Actuarial loss
Dec. 31 234,000
9. Solution:
Fair value of plan assets
Jan. 1 240,000
1
Return on plan assets 20,000 60,000 Benefits paid
Contributions to the fund 220,000
420,000 Dec. 31
10. Solutions:
Requirement (a):
Requirement (b):
PV of defined benefit obligation
1,800,000 Jan. 1
Benefits paid 75,000 450,000 Current service cost
216,000 Interest cost
Actuarial gain 10,000
Dec. 31 2,381,000
11. Solution:
Service cost:
(a) Current service cost 400,000
2
(b) Past service cost 200,000
(c) (Gain) or loss on settlement 40,000
640,000
Net interest on the net defined benefit liability (asset):
(a) Interest cost on the defined benefit obligation (1.6M x
160,000
10%)
(b) Interest income on plan assets (1.4M x 10%) (140,000)
(c) Interest on the effect of the asset ceiling -
20,000
Defined benefit cost recognized in profit or loss 660,000
PROBLEM 3: EXERCISES
1. Solution:
PV of defined benefit obligation
280,000 Jan. 1
Benefits paid 120,000 50,000 Current service cost
30,800 Interest cost
Actuarial gain 50,000
Dec. 31 190,800
2. Solution:
3
Dec. 31 110,600
3. Solution:
Fair value of plan assets
Jan. 1 360,000
Return on plan assets 80,000 120,000 Benefits paid
Contributions to the fund 480,000
800,000 Dec. 31
4. Solution:
Fair value of plan assets
Jan. 1 234,000
Return on plan assets 24,000 79,000 Benefits paid
Contributions to the fund 120,000
299,000 Dec. 31
5. Solution:
Service cost:
(a) Current service cost 600,000
(b) Past service cost 300,000
(c) (Gain) or loss on settlement (60,000)
840,000
Net interest on the net defined benefit liability (asset):
(a) Interest cost on the defined benefit obligation (2.4M x 12%) 288,000
(b) Interest income on plan assets (2.1M x 12%) (252,000)
(c) Interest on the effect of the asset ceiling -
36,000
Defined benefit cost recognized in profit or loss 876,000
4
Total defined benefit cost 843,000
5
PROBLEM 4: CLASSROOM ACTIVITY
1. Solution:
2. Solution:
Fair value of plan assets
1,176,73
Jan. 1
2
Return on plan assets 11,672 - Benefits paid
Contributions to the fund 474,934
1,663,338 Dec. 31
3. Solution:
20x1 20x0
Present value of defined benefit obligation (DBO) 4,488,294 4,645,541
Fair value of plan assets (FVPA) 1,663,338 1,176,732
2,824,95 3,468,80
Net defined benefit liability – Deficit
6 9
4. Solution:
Service cost:
(a) Current service cost 239,152
(b) Past service cost -
(c) (Gain) or loss on settlement -
239,152
Net interest on the net defined benefit liability (asset):
(a) Interest cost on the defined benefit obligation 250,395
(b) Interest income on plan assets (given) (77,179)
(c) Interest on the effect of the asset ceiling -
173,216
Defined benefit cost recognized in profit or loss 412,368
6
Remeasurements of the net defined benefit liability (asset):
(a) Actuarial (gains) and losses (646,794)
(b) Difference between interest income on plan assets
and return on plan assets (77,179 - 11,672) 65,507
(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 (581,287)
5. Solution:
Net defined benefit liability (asset) - Jan. 1, 20x1 3,468,809
Contributions (474,934)
Defined benefit cost (168,919)
Net defined benefit liability (asset) - Dec. 31, 20x1 2,824,956
6. Solution:
7. D
11. D
7
12. A
Solution:
Mr. A 65
Mr. B (squeeze) 38
Total 103
Divide by: 2
Average age in years - male (start) 51.5
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
8
16. D
17. B
18. D
19. D
21. D
Solution:
Month Day Year
Date of birth 8 14 1980
Normal retirement age 60
Date of retirement 8 14 2040
22. A
Solution:
Month Day Year
Date of employment as "Regular" employee 1 1 2001
Minimum service years 10
1 1 2011
23. A
Solution:
Mont
h Day Year
9
Date of employment as "Regular" employee 6 1 2001
Minimun service years 10
6 1 2011
24. C
Solution:
Month Day Year
Date of employment as "Regular" employee 6 1 2001
Date of birth -9 -1 -1951
-3 0 50
Mont
Day Year
h
Date of birth 9 1 1951
Normal retirement age 60
Date of retirement 9 1 2011
Mont
Day Year
h
Date of retirement 9 1 2011
Date of employment as "Regular" employee -6 -1 -2001
Service years 3 0 10
Choice (a) is incorrect because, on June 1, 2011, Ms. Munda has not yet reached the
age of 60.
10
59 yrs. and 3
Age on June 1, 2011
months
25. A
Solution:
Month Day Year
Date of employment 1 1 1985
Date of birth -12 -31 -1944
-11 -30 41
Mont
Day Year
h
Date of employment 1 1 1985
No. of service years before reaching the age of
20
60
Date of retirement 1 1 2005
26. B
Solution:
27. C
Solution:
11
0.87278
a
4.64% = Discount rate at December 31, 20x1.
b
No. of years before retirement
Mont
h Day Year
Expected normal retirement date 1 1 2005
End of reporting period -12 -31 -2001
-11 -30 4
28. B
Solution:
Month Day Year
Date of employment as "Regular" employee 1 1 1990
Date of birth -12 -31 -1944
Age at date of retirement -11 -30 46
Mont
Day Year
h
Date of retirement 1 1 2005
End of current reporting period -12 -31 -2001
-11 -30 4
12
Multiply by: (Salary level in 2004) 102%
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
30. A
Solution:
Month Day Year
1 1 2002
-7 -1 -1990
-6 0 12
13
PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL
1. B
Solution:
PV of defined benefit obligation
340,000 Jan. 1
Benefits paid 100,000 30,000 Current service cost
34,000 Interest cost
Actuarial gain 60,000
Dec. 31 244,000
2. A
Solution:
PV of defined benefit obligation
280,000 Jan. 1
Benefits paid 90,000 40,800 Current service cost
39,200 Interest cost
Actuarial gain 60,000
Dec. 31 210,000
3. C
Solution:
Fair value of plan assets
Jan. 1 120,000
Return on plan assets 40,000 160,000 Benefits paid
Contributions to the fund 280,000
280,000 Dec. 31
4. A
Solution:
Fair value of plan assets
Jan. 1 341,000
Return on plan assets 51,000 89,000 Benefits paid
Contributions to the fund 32,000
335,000 Dec. 31
5. A
14
Solution:
PV of defined benefit obligation
4,600,000 Jan. 1
Benefits paid 390,000 59,000 Current service cost
460,000 Interest cost
Dec. 31 4,729,000
6. B
Solution:
PV of defined benefit obligation
440,000 Jan. 1
Benefits paid 60,000 148,000 Current service cost
52,800 Interest cost
Dec. 31 580,800
7. B
Solution:
8. D
Fair value of plan assets
Jan. 1 1,500,000
Return on plan assets 300,000 300,000 Benefits paid
Contributions to the fund 360,000
1,860,000 Dec. 31
15
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