FAR 3129 Employee benefits Exercises PDF

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * DavaoFAR OCAMPO/OCAMPOFAR 29-Employee Benefits OCTOBER 2021DISCUSSION PROBLEMS Employee benefits are a. All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. b. Benefits tha...

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao Since 1977

FAR FAR.3129-Employee Benefits

OCAMPO/OCAMPO OCTOBER 2021

DISCUSSION PROBLEMS 1. Employee benefits are a. All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. b. Benefits that are payable after the completion of employment. c. Benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. d. Benefits other than short-term employee benefits, post-employment benefits and termination benefits. 2. Post-employment benefits include a. Benefits provided in exchange for the termination of an employee’s employment. b. Paid annual leave and paid sick leave. c. Long service leave. d. Pensions. 3. Which statement is incorrect regarding postemployment benefit plans? a. Post-employment benefit plans are arrangements whereby an entity provides post-employment benefits. b. An entity applies PAS 19 to all post-employment benefit plans whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. c. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. d. Under defined contribution plans, the entity’s obligation is to provide the agreed benefits to current and former employees. LECTURE NOTES: Defined Contribution vs Defined Benefit Plan Defined Contribution Plan Actuarial and investment risks fall to employees Accounting: Straightforward No actuarial assumptions No actuarial gains and losses Normally, undiscounted

Defined Benefit Plan Actuarial and investment risks fall to the entity (employer) Accounting: Complex Requires actuarial assumptions Possibility of actuarial gains and losses Normally, discounted

4. Which of the following is a characteristic of a defined benefit plan? a. The entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. b. The amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions.

c.

Actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee. d. If actuarial or investment experience are worse than expected, the entity’s obligation may be increased. 5. Which statement is incorrect regarding accounting for defined contribution plans? a. Accounting for defined contribution plans is straightforward because the reporting entity’s obligation for each period is determined by the amounts to be contributed for that period. b. No actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss. c. The obligations are measured on an undiscounted basis even when they are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. d. An entity shall disclose the amount recognized as an expense for defined contribution plans. 6. Accounting for defined benefit plans is complex. Why? a. Because actuarial assumptions are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses. b. Because the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service. c. Both a and b. d. Neither a nor b. 7. The components of defined benefit cost include a. Service cost in profit or loss. b. Interest (net) on the net defined benefit liability (asset) in profit or loss. c. Remeasurements of the net defined benefit liability (asset) in other comprehensive income. d. All of the above. 8. The deficit or surplus is: a. The present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods. b. Assets held by a long-term employee benefit fund and qualifying insurance policies. c. The difference between a and b. d. The total of a and b. 9. An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost. The projected unit credit method is also known as a. The accrued benefit method pro-rated on service. b. The benefit/years of service method. c. Both a and b. d. Neither a nor b.

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FAR.3129

EXCEL PROFESSIONAL SERVICES, INC. 10. The projected unit credit method a. Sees each period of service as giving rise to an additional unit of benefit entitlement. b. Measures each unit of benefit entitlement separately to build up the final obligation. c. Both a and b. d. Neither a nor b.

The entity does not fund its obligation to pay lump-sum benefits.

Use the following information for the next four questions

SOLUTION:

A lump sum benefit is payable on termination of service and equal to 1 per cent of final salary for each year of service. The salary in year 1 is P10,000 and is assumed to increase at 7 per cent (compound) each year. The discount rate used is 10 per cent per year. The entity does not fund its obligation to pay lump-sum benefits. The employee is expected to leave at the end of year 5.

Current service cost (P105,000 x 1.5209 x .01 x .9 x .7513) Interest cost DBO, 12/31/19 (P100,000 x 1.2155 x .01 x .8 x .6830) x Discount rate

15. Calculate the amount that the entity would recognize in profit or loss for the year ended 31 December 2020. a. P1,146 c. P1,437 b. P1,080 d. P1,534

Total 11. The defined benefit liability (deficit) at the end of the second year is a. P275 c. P196 b. P262 d. P187 12. The increase in the present value of the defined benefit obligation resulting from employee service in year 2 (current service cost) is a. P196 c. P98 b. P131 d. P89 13. The change in year 2 in the net defined benefit liability that arises from the passage of time (interest cost) is a. P131 c. P9 b. P 98 d. Nil 14. The amount to be recognized as expense in the second year is a. P196 c. P107 b. P131 d. P 98 Use the following information for the next three questions: To encourage employees older than 60 years to extend their employment with the entity, Lamentations Corporation promises its 60-year-old employees a lumpsum benefit equal to 1 per cent of final salary for each year of service they remain employed by the entity after their 60th birthday provided they remain in the employ of Lamentations Corporation until they are 65, at which time, in accordance with local laws, employees are required to retire. The benefit is payable to the employees on retirement. Employee A’s 60th birthday is on 1 January 2019. Her salary for the year ended 31 December 2019 is P100,000. At 31 December 2019 the entity made the following actuarial assumptions: • Employee A’s salary should increase by 5 per cent (compound) each year. • There is a 20 per cent probability that employee A’s employment with the entity will terminate before 1 January 2024. • The appropriate discount rate is 10 per cent per year. Employee A’s salary for 2020 is P105,000. At 31 December 2020 the entity revised its actuarial assumptions as follows: • Employee A’s salary should increase by 15 per cent (compound) each year. • There is a 10 per cent probability that employee A’s employment with the entity will terminate before reaching retirement date of 1 January 2024. • The appropriate discount rate remains 10 per cent per year.

P1,080

P

664 .1 P 66 P1,146

16. Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from: a. Experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred). b. The effects of changes in actuarial assumptions. c. Both a and b d. Neither a nor b 17. Calculate the amount that the entity would recognize in other comprehensive income for the year ended 31 December 2020. a. P1,014 c. P350 b. P1,080 d. Nil

Use the following information for the next three questions: Jessie Co. sponsors a defined benefit pension plan. For the current year ended December 31, the following information relevant to the plan has been accumulated: Defined benefit obligation, 1/1 Fair value of plan assets, 1/1 Current service cost Gain on settlement Actual return on plan assets Increase in defined benefit obligation due to changes in actuarial assumptions Market yield on high quality corporate bonds Yield on bonds issued by the entity Expected return on plan assets

P10,000,000 9,000,000 3,000,000 500,000 630,000

800,000 6% 8% 9%

18. Calculate the amount that the entity would recognize in profit or loss for the year in accordance with the revised PAS 19 a. P2,560,000 c. P2,580,000 b. P2,570,000 d. P2,590,000 19. Remeasurements of the net defined benefit liability (asset) exclude a. Actuarial gains and losses. b. The return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset). c. Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). d. The difference between the present value of the defined benefit obligation being settled, as determined on the date of settlement and the settlement price, including any plan assets transferred and any payments made directly by the entity in connection with the settlement.

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FAR.3129

EXCEL PROFESSIONAL SERVICES, INC. 20. Calculate the amount that the entity would recognize in other comprehensive income for the year in accordance with the revised PAS 19 a. P710,000 c. P800,000 b. P790,000 d. P890,000

Use the following information for the next five questions. At the beginning of the current year, the memorandum records of Anne Company’s defined benefit plan showed the following: Fair value of plan assets Defined benefit obligation Prepaid(accrued) defined benefit exp.

SOLUTION GUIDE:

P 7,500,000 (11,000,000) (P3,500,000)

The entity determined that its current service cost was P1,000,000 and the interest cost is 10%. The expected return on plan assets was 12% but the actual return during the year was 8%. Other related information at the end of the year:

SERVICE COST: - Current - Past - Settlement (Non-routine) INTEREST EXPENSE/INCOME, NET - Defined Benefit Obligation (DBO) - Plan assets (PA) - Asset ceiling effect

Contribution to the plan Benefits paid to retirees Decrease in defined benefit obligation due to changes in actuarial assumptions

REMEASUREMENT: - Defined Benefit Obligation (DBO) - Plan assets (PA) - Asset ceiling effect (excluding amount in P/L)

22. New Corporation amends its pension plan on 1/1/20. The following information is available: 1/1/20 before amendment

1/1/20 after amendment

P 950,000

P1,425,000

1,300,000

1,900,000

The past service cost as a result of this amendment is a. P950,000 c. P475,000 b. P600,000 d. P125,000

23. In accordance with the revised PAS 19, the asset ceiling includes? a. Unrecognized actuarial losses b. Unrecognized past service cost c. Present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. d. All of the above. 24. An entity’s defined benefit plan has the following information: Fair value of plan assets Defined benefit obligation Discount rate Present value of available future refunds and reduction in future contributions

200,000

25. Calculate the amount that the entity would recognize in profit or loss for the year. a. P1,000,000 c. P1,200,000 b. P1,100,000 d. P1,350,000

21. Past service cost arises from a. A plan amendment (the introduction or withdrawal of, or changes to, a defined benefit plan) b. A curtailment (a significant reduction by the entity in the number of employees covered by a plan) c. Either a or b d. Neither a nor b

Accumulated benefit obligation Projected benefit obligation

P1,200,000 1,500,000

12/31/19 P10 million 8 million 10%

12/31/20 P12 million 9 million 10%

1.6 million

2 million

In relation to the asset ceiling, the amount that the entity would recognize in other comprehensive income for the year 2020 is a. P1,000,000 c. P560,000 b. P 600,000 d. P400,000

26. Calculate the net amount that the entity would recognize in OCI for the year. a. P200,000 gain c. P50,000 loss b. P200,000 loss d. P50,000 gain 27. Calculate the amount to be recognized in the statement of financial position at the end of the current year. a. P4,000,000 c. P3,600,000 b. P3,650,000 d. P3,500,000 28. The fair value of plan assets at the end of the current year is a. P8,700,000 c. P7,950,000 b. P8,250,000 d. P7,800,000 29. The defined benefit obligation at the end of the current year is a. P11,800,000 c. P11,400,000 b. P11,600,000 d. P10,500,000

SOLUTION GUIDE: SERVICE COST: - Current - Past - Settlement (Non-routine) INTEREST EXPENSE/INCOME, NET - Defined Benefit Obligation (DBO) - Plan assets (PA) - Asset ceiling effect REMEASUREMENT: - Defined Benefit Obligation (DBO) - Plan assets (PA) - Asset ceiling effect (excluding amount in P/L)...