Chapter 5 Employee Benefits 1 PDF

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Chapter 5Employee Benefits (Part 1)PROBLEM 1: TRUE OR FALSE1. FALSE 6. FALSE2. TRUE 7. FALSE3. TRUE 8. FALSE4. TRUE 9. FALSE5. TRUE 10. FALSEPROBLEM 2: FOR CLASSROOM DISCUSSION1. D C - PAS 19 defines employee benefits as “ all forms of consideration given by an entity in exchange for service rendere...

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Chapter 5 Employee Benefits (Part 1)

PROBLEM 1: TRUE OR FALSE 1. FALSE 6. 2. TRUE 7. 3. TRUE 8. 4. TRUE 9. 5. TRUE 10.

FALSE FALSE FALSE FALSE FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION 1.

D

2.

C - PAS 19 defines employee benefits as “all forms of consideration given by an entity in exchange for service rendered by employees.”

3.

D

4.

A

5.

D

6.

A

7.

B

8.

A

9.

Solution:

Sick leave - accumulating and vesting No. of employees Total entitlement during the yr.

2 20 40

1

Less: Sick leaves taken No. of sick leaves carried forward Multiply by: Future rate (500 x 103%) Accrued liability - year-end

(14) 26 515 13,390

The vacation leaves are not accrued because they are non-accumulating and non-vesting. Vacation leaves are recognized as expense when and as they are taken. 10. Solutions: Requirement (a):

Bonus before bonus and before tax B = P x Br B = 200,000 x 2% = 4,000

Requirement (b): Bonus after bonus and before tax

B

=

P

-

=

P

x

P 1 + Br

B = 200,000 – [200,000 ÷ (1 + 2%)] B = 3,922

Requirement (c): Bonus before bonus and after tax

B

1 – Tr 1/Br – Tr

B = 200,000 x {(1 - 30%) ÷ [(1÷2%) - 30%]} B = 200,000 x (0.7 ÷ 49.7) = 2,817

Requirement (d): Bonus after bonus and after tax

B

=

P

x

B = 200,000 x {(1 + 30%) ÷ [(1÷2%) - 30% + 1]} B = 200,000 x (0.7 ÷ 50.7) = 2,761

2

1 - Tr 1/Br - Tr + 1

11. Solution: 20x1 Retirement benefits expense Prepaid retirement benefits Cash

1,000,000 200,000 1,200,000

20x2 Retirement benefits expense Prepaid retirement benefits Cash Accrued retirement benefits

1,000,000 200,000 700,000 100,000

20x3 Retirement benefits expense Accrued retirement benefits Cash

1,000,000 50,000 1,050,000

3

PROBLEM 3: EXERCISES 1.

Solution:

Employe e S. Perkins M. Jordan P. Ford J. Worthy

Starting date

VL earned to date

VL Taken

VL Not taken

12

7

5

18* 2 5

3 0 1

15 2 4

1/6/2000 6/2/2001 11/4/2002 7/28/2002

* 12 during the year + 6 carry forward = 18

Employee

Vacation Days Not Taken

Rate per Day

S. Perkins M. Jordan P. Ford J. Worthy

5 15 2 4

₱70 60 48 9

2.

Liability for Compensated Absences ₱ 350 900 96 316 ₱1,662

Solutions:

Requirement (a): Bonus before bonus and before tax

B = P x Br B = 1,800,000 x 12% = 216,000

Requirement (b): Bonus after bonus and before tax

B

=

P

B = 1,800,000 – [1,800,000 ÷ (1 + 12%)] B = 192,857

Requirement (c):

4

-

P 1 + Br

Bonus before bonus and after tax

B

=

P

x

1 – Tr 1/Br – Tr

B = 1,800,000 x {(1 - 30%) ÷ [(1÷12%) - 30%]} B = 156,846 Requirement (d): Bonus after bonus and after tax

B

=

P

x

1 - Tr 1/Br - Tr + 1

B = 1,800,000 x {(1 + 30%) ÷ [(1÷12%) - 30% + 1]} B = 139,483

3.

Solution:

Bonus after bonus and after tax

B

=

P

x

1 - Tr 1/Br - Tr + 1

44,000 = P x {(1 – 30%) ÷ [(1 ÷ 14%) – 30% + 1]} 44,000 = P x [(0.70) ÷ (7.14 – 0.30 + 1)] 44,000 = P x (0.70 ÷ 7.843) 44,000 = P x .089 P = 44,000 ÷ .089 P = 494,382

4.

Solution:

Plan A: (8% Bonus based on profit after bonus but before taxes) Bonus after bonus and before tax

B

=

P

-

P 1 + Br

B = 100,000 – [100,000 ÷ (1 + 8%)] B = 7,407

Plan B: (12% Bonus based on profit after bonus and taxes) Bonus after bonus and after tax

5

B

=

P

x

1 - Tr 1/Br - Tr + 1

B = 100,000 x {(1 + 30%) ÷ [(1÷12%) - 30% + 1]} B = 7,749

Answer: The executives would prefer Plan B

5.

Solution:

20x1 Retirement benefits expense Accrued retirement benefits

2,000,000

20x2 Retirement benefits expense Accrued retirement benefits Prepaid retirement benefits Cash

2,000,000 2,000,000 700,000

2,000,000

4,700,000

20x3 Retirement benefits expense Prepaid retirement benefits Cash

2,000,000 700,000 1,200,000

Accrued retirement benefits

100,000

6

PROBLEM 4: CLASSROOM ACTIVITY 1. Solution: Total vacation leaves entitlement of employees in 20x1 (500 x 12) 6,000 Vacation leaves taken in 20x1 ( 5,400) Unused vacation leave carried over 600 Multiply by: 90% Estimated vacation leaves to be taken in 20x2 540 Multiply by: Pay rate in 20x2 (P2,000 x 105%) 2,100 Liability for unused vacation leaves 1,134,000 Salaries expense Salaries payable

1,134,000 1,134,000

2. Solution: Requirement (a): 20x1 Retirement benefits expense Cash in bank Accrued retirement contributions payable 20x2 Retirement benefits expense Accrued retirement contributions payable Prepaid retirement contributions Cash in bank 20x3 No entry

7

400,000 160,000 240,000 400,000 240,000 260,000 900,000

PROBLEM 5: MULTIPLE CHOICE - THEORY 1. D 6. B 2.

C

7.

B

3.

D

8.

A

4.

D

9.

B

5.

A

10.

A

8

PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL 1. C Solution: Liability for accumulated vacations at 12/31/X5 Pre-20X6 accrued vacations taken from 1/1/X6 to 9/30/X6

Liability to be carried over to the next period Multiply by: Increase in salary level in Oct. 20x6 Additional liability due to the increase in salary level Vacations earned in 20X6 (adjusted to current rates) Vacation pay expense in 20x6 2.

35,000 (20,000 ) 15,000 10% 1,500 30,000 31,500

B Ryan: (800 x 2) = 1,600. None is accrued for Todd because his vacation rights neither vest nor accumulate.

C Solution: 3.

Sales perso n A

Commission (Net sales x %) (200K x 4%) = 8,000 (400K x 6%) = B 24,000 (600K x 6%) = C 36,000 Commission payable

Advances (Fixed salary) 10,000

Excess of commission over advances -

14,000

10,000

18,000

18,000 28,000

C Solution: Sick leaves taken (6 employees x 3 days x ₱100) Vacation days earned during the yr. (6 employees x 10 days x ₱100) Total compensated absences expense

6,000 7,800

D Solution: Vacation days available at year-end Multiply by: Average salary per day Adjusted liability for compensated absences

150 100 15,000

4.

1,800

5.

No liability is recognized for the non-vesting (non-monetized) sick days. These are expensed when actually taken. 9

6.

D (110,000 + 80,000) = 190,000

A Solution: Bonus after bonus and before tax

B

=

P

-

P 1 + Br

B = (320,000 – 100,000) – [(320,000 – 100,000) ÷ (1 + 10%)] B = 20,000

7.

8. D Solution: Bonus after bonus and after tax

B

=

P

x

1 - Tr 1/Br - Tr + 1

B = 400,000 x {(1 + 30%) ÷ [(1÷10%) - 30% + 1]} B = 26,158

C Solution: 9.

Bonus before bonus and after tax

B

=

P

x

1 – Tr 1/Br – Tr

B = 400,000 x {(1 - 30%) ÷ [(1÷10%) - 30%]} B = 28,866 10. A – the agreed annual contribution to the fund.

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