Chapter 6 Employee Benefits 2 Problem 3&4 PDF

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PROBLEM 3:EXERCISES1. 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, Dec. 31 190,2. Solution:PV of defined benefit obligation 130,000 Jan. 1 Benefits paid 110,000 25,000 Current service cost 15,600 I...

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PROBLEM 3: EXERCISES 1. Solution: PV of defined benefit obligation 280,000 Benefits paid 120,000 50,000 30,800 Actuarial gain 50,000 Dec. 31 190,800

Jan. 1 Current service cost Interest cost

2. Solution:

Benefits paid

PV of defined benefit obligation 130,000 110,000 25,000 15,600 50,000

Dec. 31

Jan. 1 Current service cost Interest cost Actuarial loss

110,600

3. Solution: Jan. 1 Return on plan assets Contributions to the fund

Fair value of plan assets 360,000 80,000 120,000 480,000 800,000

Benefits paid

Fair value of plan assets 234,000 24,000 79,000 120,000 299,000

Benefits paid

Dec. 31

4. Solution: Jan. 1 Return on plan assets Contributions to the fund

5. 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 (2.4M x 12%) (b) Interest income on plan assets (2.1M x 12%) (c) Interest on the effect of the asset ceiling Defined benefit cost recognized in profit or loss

Remeasurements of the net defined benefit liability (asset): (a) Actuarial (gains) and losses

Dec. 31

600,000 300,000 (60,000) 840,000 288,000 (252,000) 36,000 876,000

(15,000)

(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 Total defined benefit cost PROBLEM 4: CLASSROOM ACTIVITY

(18,000) (33,000) 843,000

1. Solution: PV of defined benefit obligation 4,645,541 Benefits paid 239,152 250,395 646,794 Actuarial gain Dec. 31, 20x1 4,488,294

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 1,176,732 Return on plan assets 11,672 Benefits paid Contributions to the fund 474,934 1,663,338 Dec. 31 3. Solution: Present value of defined benefit obligation (DBO) Fair value of plan assets (FVPA) Net defined benefit liability – Deficit

20x1 4,488,29 4 1,663,33 8 2,824,9 56

20x0 4,645,54 1 1,176,73 2 3,468,8 09

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 (b) Interest income on plan assets (given) (c) Interest on the effect of the asset ceiling Defined benefit cost recognized in profit or loss Remeasurements of the net defined benefit liability (asset):

239,152 239,152 250,395 (77,179) 173,216 412,368

(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 Total defined benefit cost 5. Solution: Net defined benefit liability (asset) - Jan. 1, 20x1 Contributions Defined benefit cost Net defined benefit liability (asset) - Dec. 31, 20x1

(646,794) 65,507

(581,287) (168,919) 3,468,809 (474,934) (168,919) 2,824,956

6. Solution: Dec. 31, 20x1

Net defined benefit liability (squeeze) Retirement benefits expense Remeasurement of defined benefit pension plan Cash (contributions)

7. D 8. A 9. D 12. A Solution: Mr A Mr B (squeeze) Total Divide by: Average age in years - male (start)

643,853 412,368 581,287 474,934

10. B 11. D

65 38 103 2 51.5

13. D - 4 employees (3 + 1). STATISTICAL DISTRIBUTION OF ELIGIBLE MEMBERS AS OF DEC. 31, 20X1 AGE 20 & below 21 - 25 26 - 30 31 - 35 36 - 40 41 - 45 46 - 50 51 - 55

less than 5 yrs.

5 but less than 10

10 but less than 15

1

1 1

1 1 1

15 but less than 20

20 years & above

TOTAL

1 2 1 1 1

56 - 60 61 - 65 66 & above TOTAL

14. D 15. A 16. D 17. B 18. D 19. D

1

4

1

1

3

-

1

2 1

1

9

20. C (27,000 x 102%) = 27,540 21. D Solution: Month 8

Date of birth Normal retirement age Date of retirement

Day

Year 1980 60 2040

14

8

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: Month 1

Date of employment as "Regular" employee Minimum service years

Day

Year 2001 10 2011

1

1

1

23. A Solution: Month Date of employment as "Regular" employee Date of birth

Age at date of employment

Date of employment as "Regular" employee Minimum service years

Day 6 -6 0

1 -1 0

Year 2001 -1951 50

50 Month 6

Day

Year 2001 10 2011

1

6

1

24. C Solution: Month Date of employment as "Regular" employee Date of birth

Age at date of employment

Date of birth Normal retirement age Date of retirement

Day 6 -9 -3

1 -1 0

Year 2001 -1951 50

49

Month 9 9

Day 1 1

Year 1951 60 2011

Date of retirement Date of employment as "Regular" employee Service years

Month 9 -6 3

Day 1 -1 0

Year 2011 -2001 10

No. of service years

10 yrs. and 3 mos.

Date of retirement Birth date Age at date of retirement

Month 6 -9 -3

1 -1 0

Year 2011 -1951 60

Age on June 1, 2011

59 yrs. and 3 months

Day

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

Month 1 -12 -11

Day 1 -31 -30

Year 1985 -1944 41

40 Month 1

Day 1

1

1

26. B Solution: Final monthly salary level (600K ÷ 12) Multiply by: Service years

Year 1985 20 2005

50,000 20

Lump sum retirement benefit

1,000,000

27. C Solution: Benefit earned for services rendered in 20x1 Multiply by: PV of 1 @ 4.64%a, n=3

50,000 0.87278

Current service cost A

4.64% = Discount rate at December 31, 20x1.

B

No. of years before retirement

Expected normal retirement date End of reporting period

43,639

Month 1 -12 -11

Day 1 -31 -30

Year 2005 -2001 4

No. of years before retirement

3

28. B Solution: Month Date of employment as "Regular" employee Date of birth Age at date of retirement Age at date of employment

Date of employment as "Regular" employee Service years before reaching the age of 60 Date of retirement

Day 1 -12 -11

1 -31 -30

Year 1990 -1944 46

45 Month 1

Day

1

Date of retirement End of current reporting period

Month 1 -12 -11

No. of years before retirement

3

1

Year 1990 15 2005

1 -31 -30

Year 2005 -2001 4

1

Day

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

30,000 102% 102% 102% 31,836 15 477,544

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

Years of service Percentage of benefit (see 'OUTLINE OF BASIC PLAN PROVISIONS' #8)

11.5 55%

Final monthly salary level (240K ÷ 12)

20,000

Multiply by: Years of service Multiply by: Percentage of benefit Termination benefits

11.5 55% 126,500...