CHAPTER EMPLOYEE BENEFITS PROBLEMS – (Red Hot Company) (a) Beginning liability for compensated absences x 420 = P2,520 (b) Employee Benefit Expense for Sick Leave and Vacation Leave Sick Leave Vacation Leave x P450 10 x 420 x 400 x 380 12 x P450 12 x 420 x 400 x 380 P2,250 4,200 800 760 P5,400 5,040 800 1,900 Total 13,140 P21,150 (c) Liability for Compensated Absences 2,520 Employee Benefit Expense – Compensated Absences 10,280 Cash 12,800 Total amount paid for compensated absences Sick leave (as computed above) 8,010 Vacation leave x 450 3,150 x 420 1,260 x 380 380 4,790 12,800 (d) Employee Benefit Expense – Compensated Absences Liability for Compensated Absences Liability for Compensated Absences, 12/31/12 Employee Unused Vacation Days A B Santos 12-7 C D Garcia 12+6 -3 15 E F Cruz 2 G H Buen 5–1 Total 6-2 P8,010 10,870 10,870 Rate P450 420 400 380 Amount P2,250 6,300 800 1,520 P10,870 (Green Grass Company) (a) Total payment in 2012 35 x 12 x 450 P189,000 25 x 10 x 45 112,500 P301,500 Liability, beginning of 2012 (13-10) x 20 x 450) (27,000) Liability, end of 2012 (12 – 10) x 40 x 450) 36,000 Sick leave expense in 2012 P310,500 (b) P36,000 (see above) Chapter – Employee Benefits (c) Liability for Compensated Absences Compensated Absences 27,000 27,000 Compensated Absences Cash 301,500 301,500 Compensated Absences Liability for Compensated Absences 6-3 36,000 (Blue Jeans Company) (a) Retirement Benefit Expense = Required Contribution = (P6,000,000 x 8%) + (35,000,000 - P10,000,000)5% (b) 6-4 36,000 Retirement Benefit Expense Prepaid Retirement Benefit Cost Cash =P1,730,000 1,730,000 70,000 1,800,000 Retirement Benefit Expense 1,730,000 Cash Accrued Retirement Benefit Cost 1,500,000 230,000 (Yellow Ribbon Trading) Defined Benefit Cost Profit or Loss Beginning balances Current service cost Interest cost 10% x 3,000,000 10% x 2,600,000 Actuarial gain or loss Benefit obligation Plan assets 300,000 -260,000 Benefits paid Contributions Ending balances (a) (b) (c) (d) (e) Other Comprehensive Income P1,000,000 300,000 (260,000) Benefit Liability (Asset) Benefit Obligation P3,000,000 1,000,000 P2,600,000 300,000 260,000 100,000 100,000 (40,000) (350,000) 1,040,000 Plan Assets 60,000 4,050,000 40,000 (350,000) 900,000 3,450,000 Net Prepaid/Accrued Benefit Cost, December 31, 2012 P3,000,000 – P2,600,000 = P 400,000 Retirement benefit expense in 2013 P1,040,000 Defined benefit cost taken to OCI P 60,000 Retirement Benefit Expense 1,040,000 Remeasurement of Defined Benefit Asset/ Liabiility – OCI 60,000 Cash 900,000 Defined Benefit Liability/Asset 200,000 Benefit Obligation P4,050,000 Plan Assets 3,450,000 68 Chapter – Employee Benefits (f) 6-5 Net defined benefit liability/asset: Beginning balance Underfunding (see entry d) Ending balance P400,000 liability 200,000 P600,000 liability Reconciled with the memorandum records: Defined benefit obligation Plan assets Net liability P4,050,000 3,450,000 P 600,000 (Midnight Black) Defined Benefit Cost Profit or Loss Balances, beginning Service cost Interest cost 9% x 1,350,000 9% x 1,250,000 Actuarial loss On ben obligation On plan assets Past service cost Benefits paid Contributions Balances, end (a) (b) Other Comprehensive Income 2,000,000 121,500 (112,500) Benefit Obligation 1,350,000 2,000,000 1,250,000 112,500 300,000 50,000 (2,000) 300,000 (120,000) 52,000 Retirement Benefit Expense Remeasurement of Defined Benefit Liability/Asset Cash Defined Benefit Liability/Asset 3,701,500 Or P3,701,500 – P3,600,500 = (120,000) 2,360,000 3,600,500 2,309,000 52,000 Defined benefit liability , end Beginning balance (1,350,000 – 1,250,000) Underfunding Defined benefit liability, end 69 Plan Assets 121,500 50,000 2,000 2,309,000 Benefit Liability (Asset) 2,360,000 1,000 P100,000 1,000 P101,000 P101,000 Chapter – Employee Benefits 6-6 Brown Cup Defined Benefit Cost Other Comprehensive Income Profit or Loss Beginning balances Current service cost Interest cost 10% x 8,200,000 10% x 8,500,000 Actuarial gain or loss On Ben Obligation On Plan Assets 780,000-850,000 Contribution Ending balances *Squeezed (a) (b) (c) (d) (e) (f) 6-7 Benefit Liability (Asset) 1,200,000 820,000 (850,000) Benefit Obligation 8,200,000 1,200,000 Plan Assets 8,500,000 820,000 850,000 (40,000) (40,000)* 70,000 1,170,000 30,000 10,180,000 (70,000) 1,500,000 10,780,000 P8,200,000 – P8,500,000 = P300,000 asset Actuarial gain or loss On plan assets 780,000 – 850,000 = 70,000 loss On benefit obligation (squeezed, see above) = 40,000 gain Defined Benefit Cost In profit or loss 1,170,000 In other comprehensive income 30,000 Retirement Benefit Expense Remeasurement of Defined Benefit Asset/Liability – OCI Defined Benefit Liability/Asset 1,170,000 Defined Benefit Liability/Asset Cash 1,500,000 30,000 1,200,000 1,500,000 Defined Benefit Asset: Beginning balance Overfunding (1,500,000 – 1,200,000) Ending balance – asset Remeasurement of Defined Benefit Asset/Liability – OCI Defined Benefit Asset/Liability (White Flower Company) (a) Fair value of plan asset, ending Fair value of plan assets, beginning Contributions to the plan Benefits paid Balance, before actual return Actual return on plan assets 70 P300,000 300,000 P600,000 50,000 50,000 P4,950,000 P4,600,000 500,000 (700,000) P4,400,000 P 550,000 Chapter – Employee Benefits (b) 6-8 Actual return Expected return based on interest rate of 10% 10% x P4,600,000 Actuarial gain taken to OCI P P 550,000 460,000 90,000 (Orange Gem Company) (a) Worksheet Defined Benefit Cost Other Comprehensive Income Profit or Loss Beginning balances Current service cost Interest cost 10% x 9,000,000 10% x 8,000,000 Actuarial gain/loss Benefit obligation Plan assets 640,000-800,000 Benefits paid Contributions Past service cost Ending balances *squeezed (b) (c) (d) Benefit Liability (Asset) 1,000,000 900,000 (800,000) Benefit Obligation 9,000,000 1,000,000 800,000 (50,000)* 160,000 (600,000) 110,000 800,000 11,050,000 Retirement Benefit Expense Remeasurement of Defined Benefit Liability/Asset – OCI Defined Benefit Liability/Asset 1,900,000 Defined Benefit Liability/Asset Cash 2,000,000 Or 11,050,000 – 10,040,000 = (160,000) (600,000) 2,000,000 10,040,000 110,000 2,010,000 Defined Benefit Liability/Asset, Dec 31, 2013 Beginning balance (9,000,000 – 8,000,000) Underfunding (2,010,000 – 2,000,000) Defined benefit liability, Dec 31, 2013 71 8,000,000 900,000 (50,000)* 800,000 1,900,000 Plan Assets 2,000,000 P1,000,000 10,000 P1,010,000 P1,010,000 Chapter – Employee Benefits MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 C B A D A MC6 MC7 MC8 MC9 MC10 MC11 MC12 MC13 MC14 MC15 MC16 A A A D D A NO NO 12 C B A B Problems MC17 MC18 MC19 B D C MC20 MC21 MC22 MC23 MC24 A C B A A MC25 MC26 MC27 B C D MC28 B MC29 D MC30 C MC31 MC32 MC33 A A A MC34 C MC35 MC36 D C 140,000 + 9%(3,200,000) – 9%(3,000,000) = 158,000 185,000 – 270,000 = 85,000; 85,000 + 20,000 = 105,000 loss 158,000 +105,000 = 263,000 total retirement benefit cost 263,000 – 204,000 = 59,000 underfunding; 200,000 beg Liability + 50,000 = 259,000 3,200,000 – (2,500,000 +800,000 – 340,000) = 240,000 240,000 – (10% x 3,200,000) = 80,000 loss 5,000,000 – 3,800,000 = 1,200,000 liability Full amount of past service cost is recognized as expense Actuarial gain or loss is taken to other comprehensive income, not in profit or loss 600,000 + 580,000 + 12%(5,000,000 – 3,800,000) = 1,324,000 3,800,000 + 550,000 + 750,000 = 5,100,000 ABO= 5,000,000 + 600,000 + 580,000 + 12% (5,000,000) – 70,000 = 6,710,000 Total retirement benefit cost = 1,324,000 – 70,000 – (550,000-456,000) = 1,160,000; 1,160,000 – 750,000 = 410,000 underfunding ABO= 6,710,000; PA = 5,100,000; net liability = 6,710,000 – 5,100,000 =1,610,000 Actuarial loss on plan assets = 5,565,000 – (5,035,000+503,500 + 425,000 – 390,000) = 8,500 Actuarial gain on benefit obligation = 32,500 + 8,500 = 41,000 Service cost = 5,629,000 – (4,600,000 + 460,000 - 41,000 – 390,000) =1,000,000 (or prepare worksheet and squeeze) 503,500 – 8,500 = 495,000 1,000,000 + 460,000 – 503,500 – 32,500 = 924,000 600,000 – 240,000 = 360,000 (Current service cost is fully funded, so the underfunding arises from past service cost.) 4,400,000 + 12%(4,400,000) + 1,480,000 – 50,000 - 600,000 = 5,758,000 2,400,000 + 300,000 – 2,500,000 = 200,000 liability 4,200,000 – 3,300,000 = 900,000 asset; however, the asset amount is limited by the present value of future refunds and reductions in future contributions of P500,000; so the defined benefit asset will be shown at P500,000 only 72 ... for Compensated Absences 6- 3 36, 000 (Blue Jeans Company) (a) Retirement Benefit Expense = Required Contribution = (P6,000,000 x 8%) + (35,000,000 - P10,000,000)5% (b) 6- 4 36, 000 Retirement Benefit... (550,00 0-4 56, 000) = 1, 160 ,000; 1, 160 ,000 – 750,000 = 410,000 underfunding ABO= 6, 710,000; PA = 5,100,000; net liability = 6, 710,000 – 5,100,000 =1 ,61 0,000 Actuarial loss on plan assets = 5, 565 ,000... cost = 5 ,62 9,000 – (4 ,60 0,000 + 460 ,000 - 41,000 – 390,000) =1,000,000 (or prepare worksheet and squeeze) 503,500 – 8,500 = 495,000 1,000,000 + 460 ,000 – 503,500 – 32,500 = 924,000 60 0,000 –