POST EMPLOYMENT BENEFITS

Employee benefits payable after the completion of employment other than termination benefits

POST-EMPLOYMENT EMPLOYEE BENEFITS

Type Defined contribution plan Defined benefit plan
Entity’s obligation To contribute to the fund To provide agreed benefits
Fixed/defined Contribution Benefit
Actuarial/investment risk Falls on the employee Falls on the entity

DEFINED CONTRIBUTION PLAN

- pays fixed contributions into a separate entity (fund)
- will have no legal or constructive obligation to pay further if he does not hold sufficient assets to pay all
employee benefits
- contribution is definite, but benefits of employees are indefinite

Accounting is straightforward
Entity’s obligation for each period is determined by the amounts to be contributed for that period.
No actuarial assumptions are required. So, no possibility for actuarial gains or loss.

DEFINED BENEFIT PLAN

- keep projected unit credit method in mind
- for every year of service, you are entitled to 1 benefit.

Step 1: Determine Current Service Cost (CSC)

= PV of (Final Salary x % of Entitlement x Years with Company)

Step 2: Determine Defined Benefit Obligation (DBO)

Actuarial gain Beginning balance

Benefits paid Current service cost
CA of DBO settled in advanced Past service cost
Interest expense
Actuarial loss
Ending Balance

Step 3: Determine the Fair Value of Plan Assets (FVPA)

- Assets held by a long-term employee benefits fund
- Not available to employer’s creditors even in bankruptcy
Exception: Surplus

Beginning balance Benefits paid

Actual return Settlement of DBO paid in adv
Contributions made
Ending balance

Step 4: Determine the Deficit (FVPA < DBO) or Surplus (FVPA > DBO)
 Step 5: Determine the Net Defined Benefit Liability / Accrued Pension = Deficit
Net Defined Benefit Asset / Prepaid Pension = Lower of Surplus & Asset Ceiling
[The only things presented in the FS of the employer!]

Prepaid Pension Accrued Pension Beg. Balance of DBO (XX)

XX Beg. Balance Beg. Balance (XX) Beg. Balance of FVPA XX
Contributions made Defined benefit cost XX/(XX)
Ending balance
Overfunding = Contributions made > DBO
Underfunding = Contributions made < DBO

Step 6: Determine the Defined Benefit Cost = Service Cost + Net Interest + Remeasurements
(FVPA, Beg > DBO, Beg)
Service Cost Current Service Cost XX Surplus, Beg XX Difference
Past Service Cost XX Asset ceiling, Beg XX
+ Loss on early settlement XX Settlement Effect on AC, Beg XX
P/L Gain on early settlement (XX) = PV – Actual Price
x Discount rate X%
Int effect on AC XX
Net Interest Interest income (DBO) XX
Interest expense (PA) (XX)
Interest on effect of AC XX Surplus, End XX
+ Difference
Asset ceiling, End XX
Effect on AC, End XX
OCI Remeasurements On FVPA X/(X) Actuarial G/L
Actual Int – Int Income Effect on AC, Beg (XX)
On DBO X/(X)
Int effect on AC (XX)
Change in effect on AC X(X)
Change in Effect X/(X)

Additional summarized notes I found online that might help! :)

 PROBLEMS

Problem 1: Information on Entity A’s defined benefit plan is as follows:

PV of DBO – Jan 1, 2021 P1,800,000
FVPA – Jan 1, 2021 1,440,000
PV of DBO – Dec 31, 2021 2,160,000
FVPA, End – Dec 31, 2021 1,572,000
Current service cost 390,000
Actuarial loss 120,000
Return on plan assets 132,000
Discount rate 5%

1. How much is the net defined liability in Entity A’s December 31, 2020 statement of financial position?
2. How much is the net defined benefit liability in Entity A’s December 31, 2021 statement of financial position?
3. How much is the total defined benefit cost for 2021?
4. How much is the component of the total defined benefit plan cost to be recognized in profit or loss?
5. How much is the component of the total defined benefit plan to be recognized in other comprehensive income?

Problem 2: The following information pertains to Rembrandt Inc.’s pension plan for calendar 2017:

Defined benefit obligation at Jan 1, 2017 P4,800,000

Interest (discount) rate 10%
Current service costs 1,200,000
Pension benefits paid retirees 1,000,000

If no change in actuarial estimates occurred during 2017, Rembrandt’s defined benefit obligation at December 31, 2017
would be?

Problem 3: Bateman Corp. provides a defined benefit pension plan for its employees. The trustee administering the plan
provided the following information for the year ended December 31, 2017:

Fair value of plan assets, Jan 1 P1,200,000

Defined benefit obligation, Jan 1 1,270,000
Current service cost 300,000
Employer’s contributions 360,000
Past service cost (at Jan 1) 30,000
Benefits paid retirees 325,000
Actual and expected return 60,000
Interest (discount) rate 8%

The pension expense to be reported for 2017 is?

Problem 4: Thompson Corp. provides a defined benefit pension plan for its employees. The corporation’s actuary has
provided the following information for the year ended December 31, 2017:

Defined benefit obligation, Dec 31 525,000

Fair value of plan assets, Dec 31 625,000
Current service cost 240,000
Interest on defined benefit obligation 24,000
Past service costs 60,000
 Expected and actual return on plan assets 82,500
Contributions to plan 200,000

The pension expense to be reported for 2017 is?

Problem 5: Presented below is information related to Kiwi Ltd. For calendar year 2017.

Defined benefit obligation, Jan 1 720,000

Fair value of plan assets, Jan 1 700,000
Current service cost 90,000
Contributions to plan 125,000
Actual and expected return on plan assets 56,000
Past service costs (effective Jan 1) 10,000
Benefits paid to retirees 96,000
Interest (discount) rate 9%

1. The pension expense to be reported for 2017 is?

2. The balance of the defined benefit obligation at December 31, 2017 is?

Problem 6: Presented below is pension information related to Squash Corp. for the calendar year 2017.

Current service cost P204,000

Discount (interest) rate 9%
Defined benefit obligation, Jan 1 1,800,000
Benefits paid to retirees 100,000
Past service cost (effective Jan 1) 50,000

The pension expense to be reported for 2017 is?

Problem 7: Renalyn Company provided the following information in relation to a defined benefit plan for the current year:

January 1
Fair value of plan asset 7,200,000
Projected benefit obligation 6,900,000
Prepaid/accrued benefit cost – surplus 700,000
Asset ceiling 450,000
Additional information:
Current service cost 500,000
Past service cost 150,000
Contribution to the plan 700,000
Actual return on plan asset 650,000
Actuarial gain due to decrease in PBO 40,000
Benefits paid 500,000
Present value of defined benefit obligation settled 530,000
Asset ceiling, December 31 500,000
Effective return on plan asset 10%
Discount rate 12%

What is the employee benefit expense for the current year?

Problem 8: An entity provided the following information for the current year:

Current service cost 525,000

Interest on projected benefit obligation 715,000
Interest income on plan assets 475,000
Loss on plan settlement 300,000
Past service cost during the year 395,000
Actual return on plan assets 900,000
Actuarial loss during the year 245,000
Contributions to the plan 1,300,000

What is the employee benefit expense for the current year?

Problem 9: On January 1, 2015 prior to PAS19, Vincent Company provided the following data in connection with its defined
benefit plan:

Fair value of plan assets 10,000,000

Unamortized past service cost 1,000,000
Projected benefit obligation (13,000,000)
Prepaid/accrued benefit (2,000,000)

The remaining vesting period for employees covered by the past service cost is 5 years. The entity adopted PAS 19 on
January 1, 2015. Transactions affecting the plan for 2015 are:

Current service cost 2,500,000

Interest expense 1,300,000
Interest income on plan assets (1,000,000)
Decrease in PBO due to changes in actuarial assumptions 400,000
Contribution to the plan 3,500,000
Benefits paid to retirees 3,000,000
Actual return on plan assets 1,500,000
Present value of benefits settled in advance 800,000
Payment for benefits settled in advance 900,000

What is the employee benefit expense for 2015?

Problem 10: Information relates to the defined benefit plan of Ralph Company for the year ended December 31, 2023 is as
follows:

• The projected benefit obligation has a beginning balance of P8,500,000 and P10,200,000, respectively.
• The fair value of plan assets has a beginning and ending balance of P11,200,000 and P13,300,000, respectively.
• The settlement discount rate and expected rate of return on plan assets are 10% and 12% respectively.
• The actuary provided the following data for the year ended December 31, 2023: Current and past service cost
P2,100,000 Benefit payments to retirees P1,700,000 Contribution to the fund P2,800,000

How much is the actual return on plan assets?

Problem 11: On January 1, 2021, Marielle Company reported the fair value of plan assets at P7,700,000 and defined benefit
obligation at P7,200,000. Transactions affecting the balances for the current year as follows:
 Current service cost 1,345,000
Past service cost 475,000
Contribution to the plan 990,000
Benefits paid to retirees at scheduled rate 800,000
Benefits paid to retirees at early (CV is P335,000) 295,000
Actual return on plan assets 490,000
Decrease in defined benefit obligation due to changes in actuarial assumption 155,000
Discount rate 10%

1. How much is the amount of defined benefit cost reported in its statement of comprehensive income as a component
of profit or loss?
2. How much is the amount of defined benefit cost reported in its statement of comprehensive income as a component
of OCI?

Problem 12: At the end of 2017, Lime Inc. has determined the following adjusted information related to its defined benefit
pension plan

Defined benefit obligation P1,320,000

Fair value of pension plan assets 1,220,000

Assume the net defined benefit liability/asset account at January 1, 2017 was nil. If the contribution to plan assets in 2017
is P410,000, the pension expense for 2017 is?

ANSWER KEY

Problem 1
1. P360,000 Liability = 1,800,000 – 1,440,000
2. P588,000 Liability = 2,160,000 – 1,572,000
3. P468,000

Current service cost 390,000

Past service cost -0-
Any gain or loss on settlemet -0-
Service Cost 390,000

Interest cost on DBO (1.8M x 5%) 90,000

Interest income on plan assets (1.44M x 5%) (72,000)
Interests on the effect of asset ceiling -0-
Net interest on the defined benefit liability 18,000

Actuarial gains and losses 120,000

Difference between int income on PA & return on PA (60,000)
Difference between the int on effect of asset ceiling &
change in the effect of asset ceiling -0-
Remeasurements of net defined benefit liability 60,000
Total Defined Benefit cost 468,000

4. P408,000 = 390,000 + 18,000 (Service Cost + Net interest) → P/L

5. 60,000 Remeasurements of net defined benefit liability → OCI
Problem 2 P109,600
DBO Beg 96,000
CSC 24,000
Int Exp 9,600 (96,000 x 10%)
Benefits paid (20,000)
P109,600

Problem 3 P374,000
300,000 + 30,000 + [(1,270,000 + 30,000) x 8%] – 60,000 = P374,000

Problem 4 P241,500
240,000 + 24,000 – 82,500 + 60,000 = 241,500

Problem 5
1. P109,700 = P90,000 + [(720,000 + 10,000) x 9%] + 10,000 – 56,000
2. P789,700 = P720,000 + 10,000 + 90,000 + [(720,000 + 10,000) x 9%] – 96,000

Problem 6 P420,500
P204,000 + [(1,800,000 + 50,000 x 9%)] + 50,000 = 420,500

Problem 7 P614,000
500,000 + 150,000 – (7,200,000 x 12%) + (6,900,000 x 12%) = 614,000

Problem 8 P1,460,000
525,000 + 715,000 – 475,000 + 300,000 + 395,000 = 1,460,000

Problem 9 P2,900,000
2,500,000 + 1,300,000 – 1,000,000 + 100,000 = 2,900,000
100, 000 is loss from Settlement of 900,000 and PV of 800,000.

Problem 10 P1,000,000 (Work back!)

FVPA, Beg 11,200,000
Contributions 2,800,000
Benefits (1,700,000)
Actual return??? 1,000,000
FVPA, End 13,300,000

Problem 11
1. P1,730,000
1,345,000 + 475,000 – (7,700,000 x 10%) + (7,200,000 x 10%) – 40,000 = 1,730,000
40,000 is difference between PV of 335,000 and Settlement of 295,000

2. P125,000
490,000 – 770,000 + 155,000 = P125,000

Problem 12: P510,000

P410,000 – X = 1,220,000 – 1,320,000; x = P510,000