CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

BATCH 92 OCTOBER 2022 CPALE

EMPLOYEE BENEFIT COST

1. At the beginning of current year, an entity provided the following information in connection with a
defined benefit plan:

Fair value of plan assets 10,000,000

Projected benefit obligation (13,000,000)
Prepaid /accrued benefit cost ( 3,000,000)

The entity revealed the following transactions affecting the plan for the current year:

Current service cost 2,500,000

Past service cost – remaining vesting period of covered employees is 5 years 1,200,000
Contribution to the plan 4,500,000
Benefits paid to retirees 3,000,000
Actual return on plan assets 1,500,000
Discount or settlement rate 10%
Expected return on plan assets 12%

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

a. 4,000,000
b. 3,040,000
c. 5,000,000
d. 5,200,000

2. What is the net remeasurement for the current year?

a. 500,000 gain
b. 500,000 loss
c. 600,000 gain
d. 600,000 loss

3. What is the fair value of plan assets at year-end?

a. 15,000,000
b. 13,000,000
c. 11,500,000
d. 10,500,000

4. What is the projected benefit obligation at year-end?

a. 10,500,000
b. 15,000,000
c. 18,000,000
d. 13,000,000

5. What amount should be reported as accrued or prepaid benefit cost at year-end?

a. 4,000,000 accrued
b. 4,000,000 prepaid
c. 2,000,000 accrued
d. 2,000,000 prepaid

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2. An entity provided the following information for the current year:

Current service cost 500,000
Past service cost during the year 300,000
Interest cost on PBO – 10% discount rate 600,000
Interest income on plan assets 350,000
Settlement payment of benefit obligation in advance 1,200,000
Present value of benefit obligation settled in advance 950,000
Actual return on plan assets 850,000
Actuarial loss due to remeasurement of PBO due to change in actuarial assumptions 200,000
Contribution to the plan 1,500,000
Benefits paid retirees 1,000,000
1. What amount should be reported as employee benefit expense for the current year?
a. 1,300,000
b. 1,050,000
c. 2,000,000
d. 1,100,000
2. What is the projected benefit obligation at year-end?
a. 5,650,000
b. 5,400,000
c. 5,250,000
d. 6,600,000
3. What is the fair value of plan assets at year-end?
a. 3,650,000
b. 3,900,000
c. 4,850,000
d. 4,650,000
3. An entity provided the following information during the current year:
January 1 December 31
Fair value of plan assets 6,000,000 9,000,000
Projected benefit obligation 4,500,000 5,000,000
Prepaid benefit cost – surplus 1,500,000 4,000,000
Asset ceiling 1,000,000 2,500,000
Effect of asset ceiling 500,000 1,500,000
During the year, the entity recognized current service cost P2,000,000, actual return on plan assets
P400,000, and contribution to the plan P4,550,000 and benefits paid P1,950,000. The discount rate is
10%.
1. What is the employee benefit expense for the current year?
a. 1,900,000
b. 1,850,000
c. 1,800,000
d. 2,000,000
2. What is the net remeasurement loss for the current year?
a. 1,150,000
b. 1,200,000
c. 800,000
d. 750,000
3. What amount should be reported as prepaid benefit cost on December 31?
a. 4,000,000
b. 2,500,000
c. 1,000,000
d. 1,500,000

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EMPLOYEE BENEFIT COST

Components of defined benefit cost

1. Service cost:
a. Current service cost
b. Past service cost
c. Gain or loss on plan settlement before normal retirement date

2. Net interest expense (income):

a. Interest expense on PBO at the beginning
b. Interest income on FVPA at the beginning
c. Interest expense on effect of asset ceiling at the beginning

3. Remeasurements:
a. Remeasurement of PBO
b. Remeasurement of plan assets
c. Remeasurement of effect of asset ceiling

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

5. Remeasurements are included in other comprehensive income and subsequently reclassified to retained
earnings.

6. Remeasurement of PBO:
a. If the PBO has increased or the actual obligation is higher than the estimated amount, there is an
actuarial loss.
b. If the PBO has decreased or the actual obligation is lower than the estimated amount, there is an
actuarial gain.

7. Remeasurement of plan assets:

a. If the actual return on plan asset is higher than the interest income on FVPA, the difference is a
remeasurement gain.
b. If the actual return or plan asset is lower than the interest income on FVPA, the difference is a
remeasurement loss.

8. Remeasurement of effect of asset ceiling:

The effect of the asset ceiling is the excess of prepaid benefit cost or surplus over the asset ceiling.
The asset ceiling is the present value of refund of contribution from the retirement plan or reduction in
future contribution to the plan.
a. Any increase in the effect of asset ceiling is a remeasurement loss minus interest expense on the
effect of asset ceiling.
b. Any decrease in the effect of asset ceiling is remeasurement gain plus interest expense on the effect
of asset ceiling.

9. If the contribution to the plan is more than the defined benefit cost, the difference is prepaid benefit cost
during the year.

10. If the contribution to the plan is less than the defined benefit cost, the difference is accrued benefit cost
during the year.

End

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