POST-RETIREMENT BENEFITS

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PROBLEM 1:

ABC Corp. adopted an unfunded defined benefit post-retirement plan for its 5 employees at
the beginning of 2014. The company started its operations in 2011. Under the pension plan,
employees will be paid 200% of their final monthly salary upon retirement multiplied by the
number of years in service. The following assumptions are deemed relevant (for uniformity,
assume applicable to all employees with the number of employees being constant from 2011
to the date of retirement):
Employee’s average current monthly salary rate P5,000 per employee
Estimated annual increase in salary rate 10%
Prevailing settlement/discount rate 12%
Expected retirement date 2020

Q1: What is the current service cost for 2014?

Q2: What should be recognized as past service cost for 2014?

Q3: What is the pension expense for 2014?

Q4: What is the pension expense for 2015?

PROBLEM 2:

Using the information in the previous case, assuming that the prevailing settlement/discount
rate in 2016 decrease to 10% and the annual increase in the salary rate beginning 2016 was
revised at 15%:

Q1: What is the total pension cost to be recognized in 2016?

Q2: How much from the pension cost should be recognized in the other comprehensive
income/loss portion of the SCI?

PROBLEM 3:

Using the information in the previous case, assuming that the company placed into a trust
fund (pension asset) at the beginning of 2016, a lump sum of P250,000, the fair value of
which at the end of the year being at P290,000:

Q1: What is the total pension cost to be recognized in 2016?

Q2: How much from the pension cost should be recognized in the other comprehensive
income/loss portion of the SCI?

PROBLEM 4:

ABC Corp. adopted an unfunded defined benefit post-retirement plan for its 20 employees at
the beginning of 2014. The company started its operations in 2014. Under the pension plan,
employees will be paid 10% of their final monthly salary upon retirement multiplied by the
number of years in service. The retirement settlement shall be done annually at the end of
each year for 20 years after the expected retirement date. The following assumptions are
deemed relevant (for uniformity, assume applicable to all employees with the number of
employees being constant from 2014 to the date of retirement):
Employee’s average current monthly salary rate P20,000 per employee
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Estimated annual increase in salary rate 5%

Prevailing settlement/discount rate 10%
Expected retirement date 2025

Q1: What is the current service cost for 2014?

Q2: What is the pension expense for 2014?

Q3: What is the pension expense for 2015?

PROBLEM 5:

Using the information in the previous problem assuming however that the benefits of the
employees were increased from 10% of final monthly salary to 15% of final monthly salary at
the end of 2016:

Q1: What is the current service cost for 2016?

Q2: What should be recognized as past service cost for 2016?

Q3: What is the pension expense for 2016?

PROBLEM 6:

Using the information in the previous problem assuming however that the following actuarial
assumptions had been revised starting 2017?
Estimated annual increase in salary rate 6%
Prevailing settlement/discount rate 12%
Expected retirement date 2025

Q1: What is the current service cost for 2017?

Q2: What is the remeasurement gain or loss component of the pension cost to be
recognized in the other comprehensive income/loss?

Q3: What is the pension expense to be recognized in the profit/loss for 2017?

Q4: What is the total pension cost for the year?

PROBLEM 7:

The following selected accounts were lifted from the 2014 unadjusted trial balance of Japs
Corporation. No adjusting entry had been made yet at year end in relation the post-
retirement benefits related accounts.

Accrued Pension Expense, January 1, 2014 P630,000

Pension expense for 2014, amount contributed to the plan 1,200,000

Additional information:
The memorandum account balances and other off-books transactions are as follows:
Plan asset at fair market value, January 1, 2014 P9,450,000
Accumulated benefit obligation at present value, January 1, 2014 10,080,000
Payments to retirees at scheduled retirement in 2014 1,400,000
Payments to early retirees (settlement price) in 2014 800,000
Carrying value of accrued benefits of early retirees in 2014 650,000
Current service cost 855,000
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Past service cost recognized in the current year 120,000

Settlement rate 12%
Plan asset at fair market value, December 31, 2014 9,800,000
Accumulated benefit obligation at present value, December 31, 2014 10,500,000

There had been no remeasurement (actuarial) gain or loss from plan asset and
accumulated retirement obligation in the prior years.

Q1: What is the total pension expense in 2014?

Q2: How much from the pension expense is recognized in the 2014 profit or loss?

Q3: How much from the pension expense is recognized in the 2014 other
comprehensive income or loss?

Q4: What is the accrued pension liability as of December 31, 2014?

PROBLEM 8:

The following selected accounts were lifted from the 2014 unadjusted trial balance of Ireland
Corporation. No adjusting entry had been made yet at year end in relation the post-
retirement benefits related accounts.

Prepaid Pension Expense, January 1, 2014 P220,000

Pension expense for 2014, amount contributed to the plan 750,000

Additional information:
The memorandum account balances and other off-books transactions are as follows:
Plan asset at fair market value, January 1, 2014 P3,200,000
Accumulated benefit obligation at present value, January 1, 2014 2,980,000
Payments to retirees at scheduled retirement in 2014 560,000
Current service cost 480,000
Settlement rate 8%
Actuarial loss on plan asset 80,000
Actuarial loss on accumulated benefit obligation 30,000

There had been no remeasurement (actuarial) gain or loss from plan asset and
accumulated retirement obligation in the prior years. The asset ceiling at the beginning
and at the end of the year was at P250,000 and P350,000, respectively.

Q1: What is the total pension expense in 2014?

Q2: How much from the pension expense is recognized in the 2014 profit or loss?

Q3: How much from the pension expense is recognized in the 2014 other comprehensive
income or loss?
Q4: What is the prepaid pension expense as of December 31, 2014?

PROBLEM 9:

The following information relate to the defined benefit pension plan of Bonchon Corp. in
relation to your audit of the company’s post-retirement benefit related accounts:

Present value of benefit obligation, January 1 P3,000,000

Fair value of plan asset, January 1 2,800,000
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Contribution during the year 210,000

Current service cost 160,000
Benefits paid during the year 300,000
Present value of benefits obligation, December 31 3,482,000
Fair value of plan asset, December 31 2,984,000
Discount rate 6%

Q1: What is the total employee benefit cost for the year?

Q2: What amount of employee benefit cost should be reported in the profit or loss?

Q3: What is the net remeasurement gain or loss to be reported in the other
comprehensive income or loss?

Q4: What is the balance of the prepaid or accrued pension as of December 31, 2014?

PROBLEM 10:

In connection with your audit of Dee Corp.’s post-retirement benefits related accounts, the
accountant of Dee Corp. provided you the following information for the year ended December
31, 2014:
Fair value of plan asset, January 1 P7,000,000
Present value of benefit obligation, January 1 7,500,000
Current service cost 1,400,000
Actual return on plan asset 840,000
Contribution to the plan 1,200,000
Benefits paid to retirees at scheduled retirement 1,500,000
Decrease in the present value of benefit obligation
due to changes in actuarial assumptions 200,000
Present value of additional defined benefit
obligations settled 500,000
Settlement price of the additional defined benefit obligation 400,000
Discount rate 10%

Q1: What is the total amount of employee benefit cost (pension cost)?

Q2: What amount of employee benefit cost should be reported in the profit or loss?

Q3: What is the net remeasurement gain or loss to be reported in the other
comprehensive income or loss?

Q4: What is the fair value of the plan asset as of December 31, 2014?

Q5: What is the present value of the benefit obligation as of December 31, 2014?

Q6: What is the balance of the prepaid or accrued pension as of December 31, 2014?