Annual salary 600,000.
00
Multiply: Future value of 1 at 4% at 10 periods 1.480
Final salary 888,000.00
Annual pension payment (888,000 x 2% x 15 years) 266,400.00
Multiply: PV of an ordinary annuity of 1 at 10% for 8 periods 5.335
Present value- December 31, 2029 1,421,244.00
Multipy: PV of 1 at 10% for 10 periods 0.386
Requirement Projected benefit obligation- December 31, 2019 548,600.18
Final salary 1,500,000.00
Multiply: Percentage of lump sum pension 5%
Annual benefit 75,000.00
Year Annual Benefit PV Factor Present Value
2019 75,000.00 0.361 27,075.00
2020 75,000.00 0.404 30,300.00
2021 75,000.00 0.452 33,900.00
Current Interest
Date Present Value
Service Cost Expense
Dec. 31, 2019 27,075.00 - 27,075.00
Dec. 31, 2020 30,300.00 3,249.00 60,624.00
Dec. 31, 2021 33,900.00 7,274.88 101,798.88
Current Interest
Requirement Date Total
Service Cost Expense
Dec. 31, 2019 27,075.00 - 27,075.00
Dec. 31, 2020 30,300.00 3,249.00 33,549.00
Dec. 31, 2021 33,900.00 7,274.88 41,174.88
Current service cost
Add: Interest expense (10% x 7,500,000)
Less: Interest income (10% x 7,000,000)
Gain on plan settlement:
PV of defined benefit obligation settled 500,000
Settlement price of defined benefit obligation (400,000)
Requirement 1 Employee benefit expense
Actual return on plan assets
Less: Interest income
Remeasurement gain on plan assets
Add: Actuarial gain- decrease in projected benefit obligation
Requirement 2 Net remeasurement gain- December 31
Fair value of plan assets- January 1
Add: Contribution to the plan
Actual return
Less: Benefits paid to retirees
Settlement price of defined benefit obligation
Requirement 3 Fair value of plan assets- December 31
Projected benefit obligation- January 1
Add: Current service cost
Interest expense
Less: Benefits paid to retirees
Decrease in projected benefit obligation
Present value of defined benefit obligation settled
Requirement 4 Projected benefit obligation- December 31
Accrued benefit cost- January 1
*Debit adjustment
Requirement 5 Accrued benefit cost- December 31
Journal entry:
Employee benefit expense 1,350,000
*Prepaid benefit cost 190,000
Cash 1,200,000
Remeasurement gain 340,000
Reconciliation:
Fair value of plan assets- December 31
Less: Projected benefit obligation- December 31
Accrued benefit cost- December 31
1,400,000
750,000
(700,000)
(100,000)
1,350,000
840,000
(700,000)
140,000
200,000
340,000
7,000,000
1,200,000
840,000
(1,500,000)
(400,000)
7,140,000
7,500,000
1,400,000
750,000
(1,500,000)
(200,000)
(500,000)
7,450,000
(500,000)
190,000
(310,000)
7,140,000
(7,450,000)
(310,000)
Current service cost
Add: Interest expense
Projected benefit obigation 10,000,000
Discount rate 9%
Less: Interest income
Fair value of pension fund 9,200,000
Discount rate 9%
Requirement 1 Pension expense
Actual return on pension fund
Less: Interest income
Requirement 2 Remeasurement loss
Accrued benefit cost- January 1
*Credit adjustment
Pension liability (Accrued benefit cost)- December 31,
Requirement 3 2019
Journal entry:
Employee benefit cost 1,272,000
Remeasurement loss 578,000
Cash
*Accrued benefit cost
Reconciliation:
Fair value of pension fund- January 1
Add: Actual return on the pension fund
Contribution to the fund
Less: Benefits paid to retirees
Fair value of pension fund- December 31
Projected benefit obligation- January 1
Add: Current service cost
Interest expense
Less: Benefits paid to retirees
Projected benefit obligation- December 31
Fair value of pension fund- December 31
Less: Projected benefit obligation- December 31
Pension liability (Accrued benefit cost)- December 31,
2019
1,200,000
900,000
(828,000)
1,272,000
250,000
(828,000)
(578,000)
(800,000)
(800,000)
(1,600,000)
1,050,000
800,000
9,200,000
250,000
1,050,000
(1,100,000)
9,400,000
10,000,000
1,200,000
900,000
(1,100,000)
11,000,000
9,400,000
(11,000,000)
(1,600,000)
Current service cost
Add: Past service cost for the current year
Interest expense:
Projected benefit obigation 2,200,000
Discount rate 5%
Less: Interest income
Fair value of plan assets 2,100,000
Discount rate 5%
Requirement 1 Employee benefit expense
Workback:
Fair value of plan assets- December 31
Less: Fair value of plan assets- January 1
Contribution to the fund
Add: Benefits paid
Requirement 2 Actual return on plan assets
Workback:
Projected benefit obligation- December 31
Less: Projected benefit obligation- January 1
Current service cost
Interest expense
Past service cost for the current year
Add: Benefits paid
Requirement 3 Actuarial loss- increase in projected benefit obligation
Actual return on plan assets
Less: Interest income
Remeasurement gain on plan assets
Less: Actuarial loss- increase in PBO
Requirement 4 Net remeasurement gain
Accrued benefit cost- January 1
No adjustment
Requirement 5 Accrued benefit cost- December 31
Journal entry:
Employee benefit expense 150,000
Cash
Remeasurement loss
Reconciliation:
Fair value of plan assets- December 31
Less: Projected benefit obligation- December 31
Accrued benefit cost- December 31
30,000
115,000
110,000
(105,000)
150,000
2,400,000
(2,100,000)
(21,000)
31,000
310,000
2,500,000
(2,200,000)
(30,000)
(110,000)
(115,000)
31,000
76,000
310,000
(105,000)
205,000
(76,000)
129,000
(100,000)
-
(100,000)
21,000
129,000
2,400,000
(2,500,000)
(100,000)
Workback:
Fair value of plan assets- December 31 3,000,000
Less: Fair vaue of plan assets- January 1 (2,600,000)
Contribution to the plan (350,000)
Add: Benefits paid 150,000
Requirement 1 Actual return on plan assets 200,000
Workback:
Projected benefit obligation- December 31 2,100,000
Less: Projected benefit obligation- January 1 (2,000,000)
Current service cost (100,000)
Interest expense:
Projected benefit obligation- Januar 2,000,000
Discount rate 10% (200,000)
Add: Benefits paid 150,000
Requirement 2 Actuarial gain due to decrease in PBO (50,000)
Current service cost 100,000
Add: Interest expense on effect of asset ceiling
Effect of asset ceiling- January 1 400,000
Discount rate 10% 40,000
Interest expense
Projected benefit obigation- January 2,000,000
Discount rate 10% 200,000
Less: Interest income
Fair value of plan assets 2,600,000
Discount rate 10% (260,000)
Requirement 3 Employee benefit expense 80,000
Actual return on plan assets 200,000
Less: Interest income (260,000)
Remeasurement loss on plan assets (60,000)
Add: Actuarial gain due to decrease in PBO 50,000
Less: *Remeasurement loss on effect of asset ceiling (160,000)
Requirement 4 Net remeasurement loss (170,000)
Change in the effect of asset ceiling:
Effect of asset ceiling- December 31 600,000
Effect of asset ceiling- January 1 (400,000) 200,000
Less: Interest expense on effect of asset ceiling (40,000)
*Remeasurement loss on effect of asset ceiling 160,000
