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Unit7 Module

Intermediate Accounting 2 Module
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0% found this document useful (0 votes)
21 views35 pages

Unit7 Module

Intermediate Accounting 2 Module
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 35

1

“Not intended for publication. For classroom instruction purposes only”.


2

Unit 7 – Accounting for Employee Benefits

Employee benefits are all forms of consideration given by an entity in


exchange for services rendered by employees or for the termination of
employment.

Learning Outcomes

At the end of this unit, you will be able to:


• Differentiate define contribution plan and defined benefit plan and apply
concepts in solving related problems.

Pretest

Directions: Read and analyze each item. Provide the letter of your answer. Encode your
answer in a separate word file and submit in the classwork section of our google class on
or before the date as reflected in your study schedule. Please follow the format in naming
the file for submission: Lastname_Unit7_Pretest

1. Which statement characterizes defined contribution plan?


a. Defined contribution plans are more complex than defined benefit plans.
b. The employer's obligation is satisfied by making the appropriate amount of
periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.

2. Which is not a characteristic of defined contribution plan?


a. The employer contribution each period is based on a formula.
b. The benefits to be received are usually determined by an employee's
highest salary.
c. The accounting for a defined contribution plan is straightforward and
uncomplicated.
d. The benefit of gain or the risk of loss from the assets contributed to the plan
•is borne by the employee.

3. A formula in a defined contribution plan


a. Defines the benefits that the employee will receive at the time of retirement.
b. Ensures that the defined benefit cost and funding are the same.
c. Requires an employer to contribute a certain sum each period based on
the formula.
d. Ensures that enough fund would be available.

“Not intended for publication. For classroom instruction purposes only”.


3

4. Which statement is true concerning the recognition and measurement of a defined


contribution plan?
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as
accrued liability.
c. Any excess contribution shall be recognized as prepaid expense but only
to the extent that the prepayment will lead to a reduction in future payments
or a cash refund.
d. All of these statements are true about a defined contribution plan

5. Which statement characterizes defined benefit plan?


a. Defined benefit plans are comparatively simple.
b. Retirement benefits are based on the plan's benefit formula.
c. Retirement benefits depend on how well pension fund assets have been
managed.
d. The investment risk is borne by the employee.

6. Which statement is incorrect concerning the recognition and measurement of a


defined benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense
and there is a possibility of actuarial gains and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the
amount of contribution due for the period.

7. In a 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 claims.
d. Determining the amount reported for pension expense.

8. In accounting for a defined benefit plan


a. An appropriate funding must be established to ensure that enough fund
would be available at retirement.
b. The employer responsibility is simply to make a contribution each year.
c. The expense recognized each period is equal to the cash contribution to
the plan.
d. The liability is determined based upon variables that reflect current salary
levels.

9. The formula in a defined benefit plan


a. Requires that the benefit of gain or the risk of loss from the assets
contributed to the plan should be borne by the employee.
b. Defines the benefits that the employee will receive at the time of retirement.
c. Requires that the defined benefit cost and funding must the same.
d. Defines the contribution to be made by the employer and no promise is
made concerning the ultimate benefits to be paid out to the employees.

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4

10. In rare circumstances, when a retirement benefit plan has attributes of both defined
contribution and defined benefit plan, the plan is deemed
a. Defined benefit plan
b. Defined contribution plan
c. Neither defined benefit nor defined contribution plan
d. Both defined benefit and defined contribution plan

11. Plan assets are assets held by a long-term benefit fund and must satisfy all of the
following conditions, except
a. The assets are held by an entity, the fund itself, that is legally separate from
the reporting entity.
b. The assets in the fund are available to pay only employee benefits.
c. The assets in the fund are not available to the reporting entity’s own
creditors.
d. The assets in the fund can be returned to the entity even if the remaining
assets are insufficient to meet all employee benefit obligations.

12. When an entity amends a pension plan, past service cost should be
a. Treated as a prior period adjustment because no future periods are
benefited.
b. Amortized over the remaining service period of employees.
c. Recorded in other comprehensive income.
d. Reported as an expense in the period the plan is amended.

13. What is the meaning of net interest in relation to a defined benefit cost?
a. Interest expense on defined benefit liability
b. Interest income on the fair value of plan assets
c. The difference between interest expense on defined benefit liability,
interest expense on effect of asset ceiling and interest income on plan
assets
d. Interest expense on defined benefit liability less applicable income tax

14. Which of the following should be included in plan assets?


a. Assets held by a long-term employee benefit fund
b. Qualifying insurance policy
c. Both assets held by a long-term employee benefit fund and qualifying
insurance policy
d. Neither assets held by a long-term employee benefit fund nor qualifying
insurance policy

15. 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 change in the fair value of the plan assets
during the year.
c. Is equal to the discount rate times the fair value of the plan assets at the
beginning of the period.
d. Is equal to the expected rate of return times the fair value of plan assets at
the beginning of the period.

“Not intended for publication. For classroom instruction purposes only”.


5

Topic 1
Postemployment Benefits

Content

EMPLOYEE BENEFITS

Employee benefits are all forms of consideration given by an entity in exchange


for services rendered by employees or for the termination of employment.

The employee benefits include:


a. Postemployment benefits
b. Short-term employee benefits
c. Other long-term employee benefits
d. Termination benefits

Postemployment Benefits

Postemployment benefits are employee benefits, other than termination benefits


and short-term employee benefits, which are payable after completion of employment.
This includes:
a. Retirement benefits, such as pensions and lump sum payments on retirement
b. Postemployment life insurance
c. Postemployment medical care

Postemployment benefit plans are formal arrangements between an employer


entity and the employees. These are classified as either defined contribution plans or
defined benefit plans. Such plans may be contributory or noncontributory, and funded or
unfunded.

Contributory Noncontributory

• The employer and the employee • Only the employer makes


make contributions to the retirement contributions to the retirement
benefit plan but they do not benefit plan
necessarily contribute equal • Employer shoulders all the
amounts retirement benefit cost
• Both the employer and the employee
share in the retirement benefit cost

Funded Unfunded

• The entity sets aside funds for future • The entity retains the obligation for
retirement benefits by making the payment of retirement benefits
payments to a funding agency, such

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6

as a trustee, bank or insurance without the establishment of a


company. separate fund.
• The funding agency is then
responsible for the accumulation of
funds and fir making payments to
retired employees when the benefits
become due.

Funding is the transfer of assets to an entity, called the retirement fund, which is
separate from the reporting entity for the purpose of meeting obligations arising from a
retirement benefit plan.

Defined Contribution Plan

A defined contribution plan is a postemployment benefit plan under which an


entity pays fixed contributions into a separate entity known as the fund.

The entity will have no legal or constructive obligation to pay further contributions
if the fun does not hold sufficient assets to pay all employee benefits relating to employee
service in the current and prior periods.

Simply stated, the entity makes a specific or definite amount of contribution to a


separate fund without specifying the retirement benefit to be received by the employee.

The contribution is definite but the benefit is indefinite.

Defined Benefit Plan

A defined benefit plan is simply defined as a postemployment plan other than a


defined contribution plan. An entity’s obligation is to provide the agreed benefits to
employees.

In other words, an employee is guaranteed specific or definite amount of benefit


which is usually related to his salary and years of service.

The benefit is definite but the contribution is indefinite.

Multiemployer Plan

This is a defined contribution plan or defined benefit plan that pools the assets
contributed by various entities that are not under common control and uses those assets
to provide benefits to employees of more than one entity.

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7

Insured Benefits

An entity may pay insurance premium to fund a postemployment benefit plan. Such
postemployment benefit plan shall be treated as defined contribution plan.

However, such a plan shall be accounted for as a defined benefit plan, if the entity
has a legal or constructive obligation:
a. To pay the employee benefits directly when they fall due.
b. To pay further amounts if the insurer does not pay all future employee benefits
relating to employee service in the current and future periods.

When an insurance policy is in the name of a specified plan participant or a group


of participants and the entity does not have any legal or constructive obligation to cover
any loss on the policy, the entity has no obligation to pay benefits and the insurer has sole
responsibility for paying the benefits.

The payment of fixed premium under the insurance contract is in substance the
settlement of the employee benefit obligation, rather than an investment to meet the
obligation. Consequently, the entity no longer has an asset or a liability.

Therefore, the entity shall treat such insurance payments as contribution to a


defined contribution plan.

ACCOUNTING FO DEFINED CONTRIBUTION PLAN


• Straightforward accounting – obligation of the entity is determined by the amount
contributed for each period
• No actuarial assumptions
• Obligations are measured on an undiscounted basis (except when they are not
expected to be settled wholly within 12 months after the end of the period)

Accounting Procedures
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued
expense.
c. Any excess contribution shall be recognized as prepaid expense but only to the
extent that the prepayment will lead to a reduction in future payments or a cash
refund.

Disclosures – Defined Contribution Plan


a. The amount recognized as expense for the defined contribution plan.
b. The contribution to defined contribution plan for key management personnel as
required by PAS 24 on related party disclosures.

“Not intended for publication. For classroom instruction purposes only”.


8

“Not intended for publication. For classroom instruction purposes only”.


9

ACCOUNTING FOR DEFINED BENEFIT PLAN


• Complex accounting
• Has actuarial assumptions
• Obligation is measured on a discounted basis
• Defined benefit plans may be:
o Unfunded
o Fully funded
o Partly funded
• The expense recognized is no necessarily the amount of contribution for the
period.

Components of Defined Benefit Cost

1. Service cost
a. Current service cost
b. Past service cost
c. Any gain or loss on settlement

2. Net interest
a. Interest expense on defined benefit obligation
b. Interest expense on plan assets
c. Interest expense on effect of asset ceiling

3. Remeasurements
a. Remeasurement of plan assets
b. Remeasurement of projected benefit obligation
c. Remeasurement of the effect of asset ceiling

The service cost and net interest are included in profit or loss as component of
employee benefit expense.

All of the remeasurements are fully recognized through other comprehensive


income. Paragraph 122 provides that remeasurements are subsequently transferred
within equity or reclassified to retained earnings.

Accordingly, the defined benefit cost is partly profit or loss representing service
cost and net interest, and partly other comprehensive income representing the
remeasurements. The measurement of defined benefit cost is usually made by an actuary,
the mathematical expert best qualified to do the job.

PAS 19R encourages but does not require an entity to involve a qualified actuary
in the measurement of a defined benefit obligation.

Current Service Cost


• Increase in the present value of the defined benefit obligation resulting from
employee service in the current period.
• This increases expense and defined benefit obligation

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10

Net Interest

Net interest on defined benefit liability or asset is the change in the defined benefit
obligation, plan assets and effect of asset ceiling as a result of the passage of time. The
net interest can be viewed as comprising three elements, namely:

a. Interest expense on defined benefit liability

This is computed by multiplying the defined benefit obligation at the


beginning of the reporting period by the discount rate.

b. Interest income

This is computed by multiplying the fair value of plan assets at the


beginning of the reporting period by the same discount rate.

c. Interest expense on effect of asset ceiling

This is computed by multiplying the effect of the asset ceiling at the


beginning of the reporting period by the same discount rate.

In other words, the net interest expense or net interest income is the difference
between the interest expense on the defined benefit obligation, interest expense on effect
of asset ceiling and interest income on the plan assets.

“Not intended for publication. For classroom instruction purposes only”.


11

Past Service Cost


• Cost to an entity under a defined benefit plan for services rendered by employees
in prior periods resulting from the introduction of a defined benefit plan or
amendment of an existing plan or curtailment of an existing plan

Plan amendment includes introduction of defined benefit plan or changes to an existing


defined benefit plan.

Plan curtailment is a significant reduction by the entity in the number of employees covered
by the defied benefit plan. A curtailment may arise from an isolated event, such as the
following:
a. Closing of a plant
b. Discontinuance of an operation
c. Termination or suspension of a plan

Recognition of Past Service Cost

PAS 19 provides that an entity shall recognize past service cost as an expense at
the earlier of the following dates:
a. When the plan amendment or curtailment occurs.
b. When the entity recognizes related restructuring costs or termination benefits.

This means that all past service costs, whether vested or unvested, shall be
recognized as an expense immediately. An entity can no longer defer recognition of
unvested past service costs over the remaining future vesting period. Vested benefits are
employee benefits that are not conditional on future employment.

“Not intended for publication. For classroom instruction purposes only”.


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Plan Assets

Plan assets comprise assets held by a long-term benefit fund and qualifying
insurance policies. The conditions for assets held by a long-term benefit fund are:

a. The assets are held by an entity, the fund itself, that is legally separate from the
reporting entity.
b. The assets are available to pay only employee benefits.
c. The assets are not available to the reporting entity's own creditors even in
bankruptcy.
d. The assets cannot be returned to the reporting entity or can be returned to the
reporting entity if the remaining assets of the fund are sufficient to meet all
employee benefit obligations or the assets are returned to the reporting entity to
reimburse it for employee benefits already paid.

Qualifying Insurance Policy

A qualifying insurance policy is an insurance policy issued by an insurer that is not


a related party of the reporting entity. The proceeds of the policy can be used only to pay
employee benefits and are not available to the reporting entity's own creditors even in
bankruptcy. The proceeds of the policy cannot be paid to the reporting entity, except:

a. When the proceeds represent surplus assets not needed for the policy to pay
employee benefits.

“Not intended for publication. For classroom instruction purposes only”.


13

b. When the proceeds are returned to the reporting entity to reimburse it for
employee benefits already paid.

When an insurance policy held by entity is not a qualifying insurance policy, that
insurance policy is not a plan asset.

Measurement of Plan Assets

Plan assets are measured at fair value.


Fair value of an asset is the price that would be received to sell an asset in an orderly
transaction between market participants.

Plan assets exclude unpaid contributions due from the reporting entity o the fund,
as well as any nontransferable financial instruments issued by the entity and held by the
fund.

Plan assets are reduced by any liabilities of the fund that do not relate to employee
benefits, for example, trade and other Payables and liabilities resulting from derivative
financial instruments.

Return on Plan Assets

The components of return on plan assets include the following:


a. Interest, dividend and other income derived from the plan assets.
b. Realized and unrealized gains and losses on the plan assets.

However, the following shall be deducted in computing the return on plan assets:

a. Any costs of managing the plan assets or costs of managing investments.


b. Any tax payable by the plan itself or any tax on investment income.

Remeasurement of Plan Assets

The return on plan assets is fully recognized as a remeasurement and accounted for as
component of other comprehensive income.

The amount of remeasurement is equal to the actual return on plan assets minus the
interest income on the fair value of the plan assets at the beginning of the reporting period.

a. If the actual return on plan assets is higher than the interest income on fair value
of plan assets, the difference is a remeasurement gain.
b. If the actual return on plan assets is lower than the interest income on fair value
of plan assets, the difference is a remeasurement loss.

Such remeasurement is included in other comprehensive income without any subsequent


recycling or reclassification to profit or loss. The remeasurement is reclassified
subsequently through equity or retained earnings.

“Not intended for publication. For classroom instruction purposes only”.


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Components of Fair Value of Plan Assets


a. Contribution to the fund
b. Interest income on plan assets
c. Remeasurement gain or loss on plan assets
d. Benefits paid upon retirement
e. Settlement price of plan settlement before retirement

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Projected Benefit Obligation


• Actuarial present value of all benefits attributed by the pension benefit formula to
employee service rendered before a specified date based on future compensation
level or future salary increase
• If the benefit obligation is based on current salary level, it is known as accumulated
benefit obligation.
• The defined benefit obligation contemplated under PAS 19 is the projected benefit
obligation.

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“Not intended for publication. For classroom instruction purposes only”.


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Actuarial Gains and Losses

Actuarial gains and losses are changes in the present value of the projected benefit
obligation resulting from experience adjustments and the effects of changes in actuarial
assumptions.

Experience adjustments are adjustments from the differences between the


previous actuarial assumptions and what has actually occurred. These adjustments arise
because actual events inevitably differ from actuarial assumptions.

Actuarial Assumptions

Actuarial assumptions are an entity's best estimate of the variables that will
determine the ultimate cost of providing postemployment benefits. Actuarial assumptions
shall be unbiased and mutually compatible.

Actuarial assumptions are unbiased-if they are neither imprudent nor excessively
conservative.

Actuarial assumptions are mutually compatible if they reflect the economic


relationships between factors such as inflation, rates of salary increase, the return on plan
assets and discount rates.
Actuarial assumptions comprise of demographic assumptions and financial assumptions.

Causes of Actuarial Gains and Losses

Actuarial gains and losses result from increases or decreases in the present value
of the projected benefit obligation because of changes in actuarial assumptions and
experience adjustments. The usual causes of actuarial gains and losses include the
following:
a. Unexpected high or low rate of employee turnover, early retirement or mortality
and increases in salary
b. Change in assumptions concerning benefit payment options
c. Change in discount rate

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19

Actuarial gains and losses do not include changes in the present value of the
projected benefit obligation arising from the introduction, amendment, curtailment or
settlement of the benefit plan. Such changes result in past service cost or gain and loss
on plan settlement.

Remeasurement of Projected Benefit Obligation

a. If the actual benefit obligation is higher than the estimated amount, there is an
actuarial loss.

This means that the projected benefit obligation has increased and the increase
is recognized as an actuarial loss.

b. If the actual benefit obligation is lower than the estimated amount, there is an
actuarial gain.

This means that the projected benefit obligation has decreased and the decrease
is recognized as an actuarial gain.

“Not intended for publication. For classroom instruction purposes only”.


20

Assessment

Directions: Read and analyze problem. Select the best answer from the choices given
and provide solutions. No merit shall be given for answers without solutions. Encode your
answer in a separate word file and submit in the classwork section of our google class on
or before the date as reflected in your study schedule. Please follow the format in naming
the file for submission. Lastname_Unit7_Topic1_Assessment

Activity 1

Answer Problem 2 of the Chapter 5 of your book Intermediate Accounting 2 pages 217-
219. Select the best answer from the choices given and provide the letter of your answer.

Activity 2

Answer Problem 3 of the Chapter 5 of your book Intermediate Accounting 2 pages 219-
221. Answer the questions given on each problem. Provide solutions. No merit shall be
given for answers without solutions.

Activity 3

Answer Problem 4 of the Chapter 5 of your book Intermediate Accounting 2 pages 222-
223. Select the best answer from the choices given. Provide solutions for each problem.
No merit shall be given for answers without solutions.

“Not intended for publication. For classroom instruction purposes only”.


21

Topic 2
Defined Benefit Plan

Content

BASIC ACCOUNTING CONSIDERATIONS

The benefit plan shall be viewed as a subentity separate and distinct from the
primary entity, which is the employer entity. The subentity maintains information that
does not appear in the financial statements of the primary entity.

Such information is kept only by means of memorandum records and therefore not
reflected in the general ledger accounts of the primary entity. The information contained
in the memorandum records of the subentity contains the following:

a. Fair value of plan assets (FVPA)


b. Projected benefit obligation (PBO)

Fair value of plan assets


• The source of fund set aside in meeting future benefit payments
• Analogous to an off-statement of financial position asset with a debit balance

Projected benefit obligation (or defined benefit obligation)


• Present value of expected future payments required to settle the obligation arising
from employee service in the current and prior periods
• Analogous to an off-statement of financial position liability with a credit balance

These 2 items are kept only in the memorandum records of the subentity.

The “prepaid/accrued benefit cost” is the item that appears on the financial statement
of the employer entity.

• If FVPA is more than PBO,


o Plan is overfunded and therefore there is a prepaid benefit cost, a
noncurrent asset
• If FVPA is less than PBO,
o Plan is underfunded, and therefore, there is an accrued benefit cost, a
noncurrent liability

Illustration 1 – Underfunding

To simplify the example, the only component of the benefit expense is the current service
cost of P500,000. The entity made a contribution of P450,000 to the defined benefit plan
for the current year. The journal entry to record the expense and the contribution is:

“Not intended for publication. For classroom instruction purposes only”.


22

Employee benefit expense 500,000


Cash 450,000
Prepaid/accrued benefit cost 50,000

Illustration 2 – Overfunding

Again, the only component of the benefit expense is the current service cost of P500,000.
The entity made a contribution of P600,000 to defined benefit plan for the current year.
The journal entry to record the expense and the contribution is:

Employee benefit expense 500,000


Prepaid/accrued benefit cost 100,000
Cash 600,000

Prepaid/Accrued Benefit Cost

Observe that the “prepaid/accrued benefit cost” account is the balancing figure. As the
yeas go by, this account will build up and it may have debit or credit balance at the end of
current reporting period.

• If the account has a debit balance, it is classified as noncurrent asset presented


as prepaid benefit cost.
• Otherwise, if the account has credit balance, it is classified as noncurrent liability
presented as accrued benefit cost.

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“Not intended for publication. For classroom instruction purposes only”.


24

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Settlement of Plan

A settlement is a transaction that eliminates all further legal or constructive obligations


for part or all of the benefits provided under a defined benefit pan.

A lump sum payment to plan participants in exchange for their rights to receive specified
postemployment benefits is also a settlement. However, PAS 19 clarified that a lump sum
payment to plan participants made under the terms of the existing defined benefit plan is
not a settlement.

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26

This is referred to as routine settlement and considered an actuarial assumption that


should be included in the measurement of the defined benefit obligation.

The most obvious example of a routine settlement is the option to take a lump sum
payment instead of an annuity or a periodic payment.

Gain or Loss on Settlement

PAS 19 provides that an entity shall recognize gain or loss on the settlement of a
defined benefit plan when the settlement occurs. The gain or loss on settlement is the
difference between the settlement price and the present value of the defined benefit
obligation on the date of settlement.

The settlement price includes:


a. Any plan assets transferred, and
b. Any payments made directly by the entity in connection with the settlement

Any gain or loss on settlement is fully recognized and included in service cost in
the computation of employee benefit expense.

“Not intended for publication. For classroom instruction purposes only”.


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FVPA more than PBO


• Plan is overfunded
• Prepaid benefit cost
• PAS 19 calls it – surplus

PAS 19 provides that the surplus in a defined benefit plan must not exceed the
asset ceiling determined by using the discount rate in the measurement of the defined
benefit obligation.

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The asset ceiling is the present value of any economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan.

Illustration

At year-end, a defined benefit plan revealed the following data:

Fair value of plan assets 6,000,000


Projected benefit obligation 5,000,000
Prepaid/accrued benefit cost – surplus 1,000,000

The asset ceiling of the present value of available future refunds and reduction in future
contributions is P1,200,000. The surplus does not exceed the asset ceiling. Therefore, a
prepaid benefit cost or surplus asset of P1,000,000 shall be reported in the statement of
financial position at year-end.

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Transitional Provision

Revised PAS 19 provides that an entity shall apply this standard retrospectively.
This means that any transitional effect of the application of the amendment under PAS 19
shall be accounted for as adjustment of the beginning balance of retained earnings.

However, an entity need not adjust the carrying amount of assets for changes in
employee benefit costs that were included in the initial carrying amount of the assets. In

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31

other words, assets such as inventory and property, plant and equipment that include
employee benefit costs in their carrying amount do not have to be restated.

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Disclosures – Defined Benefit Plan

a. Characteristics of the defined benefit plan and risks associated with the plan
b. Reconciliations for the fair value of plan assets and the present value of the defined
benefit obligation
c. Separate showing of current service cost, past service cost, interest expense or
income and remeasurements
d. Disaggregation of the fair value of plan assets into classes that distinguish the
nature and risks of assets
e. A sensitivity analysis for each significant actuarial assumption showing the effect
on the defined benefit obligation for any change
f. Description of any funding arrangement and policy
g. Expected contribution to the plan 'for the next period
h. Maturity profile of the defined benefit obligation

PAS 26
• This standard deals with “accounting and reporting by retirement benefit plans”.
• For purposes of this standard, such a hybrid plan is deemed to be a defined
benefit plan.

Report of Defined Contribution Plan


• Contains a statement of net assets available for benefits and a description of the
funding policy
• Plan assets shall be carried at fair value
• When plan investments are held for which an estimate is not possible, the reason
why fair value is not used shall be disclosed.

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Report of Defined Benefit Plan

This shall contain either:

1. A statement that shows the net assets available for benefits, the actuarial present
value of promised benefits, distinguishing between vested and nonvested benefits,
and the resulting excess or deficit.

2. A statement of net asset available for benefits, including either a note disclosing
the actuarial present value of promised vested and nonvested benefits or a
reference to this information in an accompanying actuarial report.

As in the case of defined contribution plan, investments of a defined benefit plan shall be
carried at fair value.

“Not intended for publication. For classroom instruction purposes only”.


34

Frequency of Actuarial Valuation

In many countries, actuarial valuations are not obtained more frequently than every
three years. PAS 26 does not make it incumbent upon the plan to use annual actuarial
valuation.

If an actuarial valuation has not been prepared on the date of the report, the most
recent valuation is used and the date of actuarial valuation is disclosed.

Disclosure

The report of a retirement plan, defined contribution and defined benefit, shall disclose.
the following information:

a. Statement of changes in net assets available for benefits.


b. Summary of significant accounting policies.
c. Description of the and the effect of any changes in the plan during the period.

“Not intended for publication. For classroom instruction purposes only”.


35

Assessment

Directions: Read and analyze problem. Select the best answer from the choices given
and provide solutions. No merit shall be given for answers without solutions. Encode your
answer in a separate word file and submit in the classwork section of our google class on
or before the date as reflected in your study schedule. Please follow the format in naming
the file for submission. Lastname_Unit7_Topic2_Assessment

Activity 1

Answer Problem 2 of the Chapter 6 of your book Intermediate Accounting 2 pages 259-
261. Select the best answer from the choices given and provide the letter of your answer.

Activity 2

Answer Problem 3 of the Chapter 6 of your book Intermediate Accounting 2 pages 262.
Answer the questions given on each problem. Provide solutions. No merit shall be given
for answers without solutions.

Activity 3

Answer Problem 4 of the Chapter 6 of your book Intermediate Accounting 2 pages 262-
265. Select the best answer from the choices given. Provide solutions for each problem.
No merit shall be given for answers without solutions.

“Not intended for publication. For classroom instruction purposes only”.

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