COLEGIO DE DAGUPAN

Arellano Street, Dagupan City

School of Business and Accountancy

BUSINESS POLICY AND STRATEGY

First Semester, AY 2018-2019
Semi – Final Examination

Set A

I. Theories. Choose the letter of the BEST answer. No erasures on final answers.
1. In a defined contribution plan, a formula is used that
a. Defines the benefits that the employee will receive at the time of retirement.
b. Ensures that pension expense and the cash funding amount will be different.
c. Requires an employer to contribute a certain sum each period based on the formula.
d. Ensures that employers are at risk to make sure funds are available at retirement.

2. In a defined benefit plan, the process of funding refers to

a. Determining the defined benefit obligation.
b. Determining the accumulated benefit obligation.
c. Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees'
claims.
d. Determining the amount that might be reported for pension expense.

3. Remeasurements of defined benefit plan include

a. The difference between actual return and interest income on plan assets.
b. Actuarial gain or loss on projected benefit obligation
c. Change in the effect of asset ceiling minus interest expense on the beginning effect of asset ceiling
d. All of these are included in remeasurements of defined benefit plan

4. The return on plan assets

a. Is equal to the change in the fair value of the plan assets during the year.
b. Includes interest, dividends and changes in the fair value of the fund assets.
c. Is equal to the expected rate of return times the beginning fair value of the plan assets
d. All of these are included in return on plan assets

5. Vested benefits
a. Usually require a certain minimum number of years in service.
b. Are those that the employee is entitled to receive even if fired.
c. Are not contingent upon additional service under the plan
d. Are defined by all of these.

6. 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.

7. The objective of PAS 19 is to prescribe the accounting and disclosure for employee benefits. The Standard
requires an entity to recognize:
a. A liability when an employee has provided service in exchange for employee benefits to be paid in the future.
b. An expense when the entity consumes the economic benefit arising from service provided by an employee in
exchange for employee benefits.
c. Both a and b
d. Neither a nor b

8. 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 expected to be settled wholly before twelve months after the end of the annual reporting
period in which the employees render the related service.

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c. Benefits that are payable after the completion of employment.
d. Benefits other than short-term employee benefits, post-employment benefits and termination benefits.

9. An entity shall recognize a liability and expense for termination benefits

a. When the entity can no longer withdraw the offer of those benefits.
b. When the entity recognizes costs for a restructuring that is within the scope of PAS 37 and involves the payment
of termination benefits.
c. At the earlier of a or b.
d. At the later of a or b.

10. Which statement is incorrect regarding short-term paid absences?

a. An entity may pay employees for absence for various reasons including holidays, maternity or paternity, sickness
and short-term disability.
b. Accumulating paid absences are those that are carried forward and can be used in future periods if the current
period’s entitlement is not used in full.
c. An entity shall measure the expected cost of accumulating paid absences as the additional amount that the
entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting
period.
d. An entity shall recognize the expected cost of short-term employee benefits in the form of non-accumulating
paid absences when the employees render service that increases their entitlement to future paid absences.

11. When an employee has rendered service to an entity during an accounting period, the entity shall recognize
the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:
a. As a liability, after deducting any amount already paid.
b. As an expense, unless another PFRS requires or permits the inclusion of the benefits in the cost of an asset.
c. Both a and b
d. Neither a nor b

12. The relationship between the amount funded and the amount reported for pension expense in a defined
benefit plan is as follows:
a. Pension expense must equal the amount funded.
b. Pension expense will be less than the amount funded.
c. Pension expense will be more than the amount funded.
d. Pension expense may be greater than, equal to, or less than the amount funded.

13. The deficit or surplus is:

a. The present value of the defined benefit obligation.
b. The fair value of plan assets.
c. The difference between a and b.
d. The total of a and b.

14. Service cost excludes

a. Current service cost
b. Past service cost
c. Gain or loss on settlement
d. Actuarial gains and losses

15. Past service cost is

a. The increase in the present value of the defined benefit obligation resulting from employee service in the
current period.
b. The change in the present value of the defined benefit obligation for employee service in prior periods, resulting
from a plan amendment or a curtailment (a significant reduction by the entity in the number of employees covered
by a plan).
c. 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.
d. The change during the period in the net defined benefit liability (asset) that arises from the passage of time.

16. An entity contributes to an industrial pension plan that provides a pension arrangement for its employees. A
large number of other employers also contribute to the pension plan, and the entity makes contributions in
respect of each employee. These contributions are kept separate from corporate assets and are used together
with any investment income to purchase annuities for retired employees. The only obligation of the entity is to pay
the annual contributions. This pension scheme is a
a. Multiemployer plan and a defined contribution scheme

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b. Multiemployer plan and a defined benefit scheme
c. Defined contribution plan only
d. Defined benefit plan only

17. In accordance with the revised PAS 19, which of the following is reported in profit or loss?
a. Actuarial loss on defined benefit obligation
b. Actuarial gain on plan assets
c. Interest on the effect of asset ceiling
d. Gain or loss on routine settlements

18. If a pension plan is non-contributory, who makes the contributions?

a. Both the employer and employee
b. Only the employee
c. Only the employer
d. No one

19. Which statement is incorrect regarding short-term employee benefits?

a. Short-term employee benefits include non-monetary benefits for current employees if expected to be settled
wholly before twelve months after the end of the annual reporting period in which the employees render the
related services.
b. An entity need not reclassify a short-term employee benefit if the entity’s expectations of the timing of
settlement change temporarily.
c. If profit-sharing and bonus payments 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, those payments are other long-
term employee benefits.
d. PAS 19 requires disclosures about short-term employee benefits for key management personnel.

20. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be determined
by reference to 60 years service rather than 80 years service. As a result, the defined benefit pension liability will
increase by P10 million. The average remaining service lives of the employees is 10 years. How should the increase
in the pension liability by P10 million be treated in the financial statements?
a. The past service cost should be charged against retained profit
b. The past service cost should be charged against profit or loss for the year
c. The past service cost should be spread over the remaining working lives of the employees
d. The past service cost should not be recognized

21. Which of these assets should be included within the valuation of the plan assets?
a. Unpaid contributions
b. Unlisted corporate bonds that are redeemable but not transferable without the entity's permission
c. A loan to the entity that cannot be assigned to a third party
d. Investments in listed companies

22. In all pension plans, the accounting problems include all the following except
a. Measuring the amount of pension obligation.
b. Disclosing the status and effects of the plan in the financial statements.
c. Allocating the cost of the plan to the proper periods.
d. Determining the level of individual premiums.

23. Termination benefits are employee benefits provided in exchange for the termination of an employee’s
employment as a result of:
a. An entity’s decision to terminate an employee’s employment before the normal retirement date.
b. An employee’s decision to accept an offer of benefits in exchange for the termination of employment.
c. Either a or b
d. Neither a nor b

24. 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.

25. An entity operates a defined benefit pension plan and changes it to a defined contribution plan. The defined
benefit plan still relates to past service but not to future service. The net pension liability after the plan

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amendment is P70 million, and the net pension liability before the amendment was P100 million. How should the
entity account for this change?
a. The entity recognizes a gain of P30 million
b. The entity does not recognize a gain
c. The entity recognizes a gain of P30 million over the remaining service lives of the employees
d. The entity recognizes the gain but applies the 10% corridor approach to it

26. Which of these events will cause a change in a defined benefit obligation?
I. Changes in mortality rates or the proportion of employees taking early retirement.
II. Changes in the estimated salaries or benefits that will occur in the future.
III. Changes in the estimate employee turnover.
IV. Changes on the discounted rate used to calculate defined benefit liabilities and the value of assets.
a. I, II, III and IV
b. I, II and IV
c. II and III
d. II, III and IV

27. A liability for compensated absences, for which it is expected that employees will be paid, should
a. Be accrued during the period when the compensated time is expected to be used by employees.
b. Be accrued during the period following vesting.
c. Be accrued during the period when earned.
d. Not be accrued unless a written contractual obligation exists.

28. A pension liability is reported when

a. The defined benefit obligation exceeds the fair value of pension plan assets.
b. The accumulated benefit obligation is less than the fair value of pension plan assets.
c. The pension expense reported for the period is greater than the funding amount for the same period.
d. Accumulated other comprehensive income exceeds the fair value of pension plan assets.

29. In determining the present value of the prospective benefits (often referred to as the defined benefit
obligation), the following are considered by the actuary:
a. Retirement and mortality rate.
b. Interest rates.
c. Benefit provisions of the plan.
d. All of these factors.

30. An entity on December 31, 2014, changes its defined benefit pension plan to a defined contribution plan. The
entity agrees with the employees to pay them P9 million in total on the introduction of a defined contribution
plan. The employees forfeit any pension entitlement for the defined benefit plan. The pension liability recognized
in the balance sheet at December 31, 2014, was P10 million. How should this curtailment be accounted?
a. A settlement gain of P1 million should be shown
b. The pension liability should be credited to reserves and a cash payment of P9 million should be shown in
expense in the income statement
c. The cash payment should go to reserves and the pension liability should be shown as a credit to the income
statement
d. A credit to reserves should be made of P1 million

II. Problems. Encircle your final answers. (2 points each)

1.The AAL Company set up a defined benefit post-employment plan with effect from 1 January 20X7. In the first
year the expected return on plan assets was PHP5,000, the actual return on plan assets was PHP4,000, the current
service cost was PHP12,000 and AAL's contributions paid into the plan were PHP7,500.
What is the net expense to be recognized in profit or loss for the year ended 31 December 20X7, according to
IAS19 Employee benefits?

2. On January 1, 2017, Cringe company had the following balances in its memorandum records: Fair value of plan
assets P3,200,000; Accrued Benefit Obligation P3,200,000:
Other data related to the retirement benefit plan for 2016 are as follows:
Current service cost P140,000
Unrecognized prior service cost -0-
Contribution to the plan 204,000
Benefits paid 200,000
Actual return on plan assets 185,000
Discount rate 9%
Expected rate of return 6%

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The retirement benefit expense for 2017 is

3. On January 1, 2016, Breeze Corporation adopted a defined benefit pension plan. The plan's service cost of
P150,000 was fully funded at the end of 2016. Prior service cost was funded by a contribution of P60,000 in 2016.
Amortization of prior service cost was P24,000 for 2016. What is the amount of Cub's un-amortized past service
cost at December 31, 2016?

4. The following information relates to the defined benefit pension plan for the Alone
Company for the year ending December 31, 2016.
Projected benefit obligation, January 1 P4,600,000
Projected benefit obligation, December 31 4,729,000
Fair value of plan assets, January 1 5,035,000
Fair value of plan assets, December 31 5,565,000
Expected return on plan assets 450,000
Amortization of deferred gain 32,500
Employer contributions 425,000
Benefits paid to retirees 390,000
Settlement INTEREST rate 10%
Current Service cost for the year would be

5. At the start of the year, Urn had the following balances in its pension benefit memo records:
 Fair value of plan assets, P3,200,000
 Accrued benefit obligations, P3,200,000
During the year, the following data related to pension plan are available:
 current service cost, P140,000
 Contribution to the plan, P204,000
 Benefits paid to retirees, P200,000
 Actual return on plan assets, P185,000
 Discount rate, 9%
 Expected rate of return on plan assets, 6%
Urn’s retirement benefits expense for the year is

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