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INTERMEDIATE ACCOUNTING 2 PROBLEM SOLVING: DEFINED BENEFIT PLAN (Use the below problem to answers the succeeding four (4) questions.) At the beginning of current year, Rachel Company reported the fair value of plan assets at P6,700,000 and projected benefit obligation at P7,600,000. The entity revealed the following information for the current year” Current service cost Past service cost Discount rate Actual return on plan assets Contribution to the plan Benefits paid to retirees

1,450,000 300,000 10% 500,000 1,500,000 800,000

1. What is the employee benefit expense? a. 1,840,000 c. 2,510,000 b. 1,540,000 d. 1,750,000 (1,450,000 + 300,000 + 760,000 – 670,000) 2. What is the remeasurement gain or loss on plan assets? a. 170,000 gain c. 670,000 gain b. 170,000 loss d. 670,000 loss 500,000-670,000 3. What is the fair value of plan assets on December 31? a. 8,070,000 c. 7,900,000 b. 7,400,000 d. 8,200,000 6.7M + 1.5M +500,000 – 800,000 4. What is the projected benefit obligation on December 31? a. 8,250,000 c. 9,010,000 b. 9,050,000 d. 9,310,000 7.6M +1,450,000+300,000+760,000-800,000 (Use the below problem to answers the succeeding four (4) questions.) Sandra Company provided the following information for the current year: Current service cost Interest expense on PBO Interest income on plan assets Loss on plan settlement before normal retirement date Present value of benefit obligation settled in advance Past service cost during the year Actual return on plan assets Actuarial loss on PBO during the year Contribution to the plan Benefits paid to retirees Discount or settlement rate

500,000 600,000 350,000 250,000 950,000 300,000 850,000 200,000 1,500,000 1,000,000 10%

5. What is the employee benefit expense for the current year?

1 INTERMEDIATE ACCOUNTING 2

DEFINED BENEFIT PLAN

INTERMEDIATE ACCOUNTING 2 PROBLEM SOLVING: DEFINED BENEFIT PLAN a. 1,300,000 c. 1,500,000 b. 1,050,000 d. 1,100,000 500k+600k-350k+250k+300k 6. What is the net remeasurement for the current year? a. 500,000 gain c. 300,000 gain b. 200,000 loss d. 300,000 loss 850k-350k-200k 7. What is the fair value of plan assets at year-end? a. 3,650,000 c. 4,900,000 b. 4,650,000 d. 5,850,000 3.5m+1.5m+850k-1.2m-1m 8. What is the projected benefit obligation at year-end? a. 5,650,000 c. 6,400,000 b. 6,650,000 d. 6,450,000 6m+500k+300k+600k-950k-1m+200k 9. Information on EQUANIMITY COMPOSURE Co.’s defined benefit plan is shown below: ₱480,000  PV of defined benefit obligation, Jan. 1 488,000  PV of defined benefit obligation, Dec. 31  Interest cost 10% 200,000  Benefits paid to retirees  Increase in present value of defined benefit obligation during the year due to changes in actuarial assumptions 40,000 How much is the current service cost? a. 120,000 b. 200,000 c. 160,000

d. 220,000

Solution: PV of defined benefit obligation Benefits paid

200,000

Dec. 31

488,000

480,000 120,000 48,000 40,000

Jan. 1 Current service cost (squeeze) Interest cost (480,000 x 10%) Actuarial loss - increase in PV of PBO

10. Flash Inc. has a defined benefit plan for its employees. The following information relates to this plan: Present value of defined benefit obligation, January 1, 2002 Fair value of plan assets, January 1, 2002 Service cost - 2002 Actual return on plan assets - 2002 Discount rate based on high quality corporate bonds Expected rate of return on assets

10,000,000 10,400,000 800,000 900,000 10% 8%

An actuarial loss of ₱20,000 was incurred during 2002. There was no unrecognized prior service cost or unrecognized gains or losses. Flash's defined benefit cost for the year was a. 880,000. b. 920,000. c. 640,000. d. 988,000. Service cost

800,000

2 INTERMEDIATE ACCOUNTING 2 DEFINED BENEFIT PLAN...