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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

CHAPTER 19

PENSIONS AND OTHER EMPLOYEE FUTUREBENEFITS

ASSIGNMENT CLASSIFICATION TABLE

TopicsBrief

Exercises Exercises Pro!e"s#ri$i%&

Assi&%"e%$s

1. ensions from a!usiness "ers"ecti#e.

1 1, $, %, &, '

$. (efined contri!ution"lans.

$, % 1, $

%. (efined !enefit "lans. % 1, $, %, ),1*, 1%

&. Em"loyer+s !enefito!ligation.

& %, &, ' %, ), , -

'. Transactions and e#entsthat change !enefit "lanassets.

', ) %, &, ', ), ,

). /unded status. ), , -, 1*, 11,1$

&, ', -

. ension e0"ense andaccounting for a defined

!enefit "ension "lanunder immediaterecognition a""roach.

$, -, 1*, 11,1$, 1%, 1&

%, &, ', -,1*, 11, 1%,

1&, 1', $*,$1

%, &, ', ,1*, 11

. (efined !enefit "lansith !enefits that #est oraccumulate other than"ension "lans.

1' 1&, 1, 1,1-

$, 1%

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ASSIGNMENT CLASSIFICATION TABLE 'CONTINUED(

TopicsBrief

Exercises Exercises Pro!e"s#ri$i%&

Assi&%"e%$s

-. resentation anddisclosure. %, , , 1$,$* &, ),

1*. (ifferences !eteenI/42 and A2E.

-, 1*, 11,1', 1), $1

', , 1* 1, )

511. 6ne3"erson "lan. 1) $$ 1&

51$. (eferral andamorti7ation a""roach.

, , 11, 1%,1&, 1), 1

', , , -,1*, 11, 1$,1', 1), $*,$1, $%

$, &, ', ), ,, -, 1*, 11,1$

%

5This material is dealt ith in an A""endi0 to the cha"ter.

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ASSIGNMENT CHARACTERISTICS TABLE

I$e" Descrip$io%Le)e! of Diffic*!$+

Ti"e'"i%*$es(

E1-31 (efined Contri!ution lan. 2im"le

'31*

E1-3$ (efined Contri!ution lan. 2im"le 1*31'E1-3% Calculation of "ension e0"ense 8 I/42. Moderate 1'3$*E1-3& re"aration of ork sheet for E1-3%. Moderate 1'3$'E1-3' (efined !enefit "lan 8 Immediate 4ecognition

#ersus (eferral and Amorti7ation.Moderate $'3%*

E1-3) Calculation of actual return. 2im"le 1*31'E1-3 (eferral and Amorti7ation. Moderate %'3&'E1-3 ension ork sheet for E1-3. Moderate %*3%'E1-3- Immediate 4ecognition.. Moderate %*3%'E1-31* Calculation of "ension e0"ense. 2im"le 1*31'E1-311 Calculation of "ension e0"ense and 9ournal

entries.Moderate $'3%'

E1-31$ Calculation of "ension e0"ense, 9ournal entriesand disclosures.

Moderate $*3$'

E1-31% Calculation of "ension e0"ense. 2im"le '31*E1-31& ost3retirement !enefit e0"ense. Moderate %*3%'E1-31' Calculation of "ension e0"ense. Moderate $*3%*E1-31) Actuarial gains and losses.. 2Im"le 1'3$*E1-31 ost3retirement !enefit e0"ense.. 2Im"le 1*31$E1-31 ost3retirement !enefit ork sheet. 2im"le 1'3$*E1-31- ost3retirement !enefit reconciliation schedule. 2im"le 1*31'E1-3$* ension calculations and disclosures. Moderate $'3%'E1-3$1 Accounting for "ast ser#ice costs. Moderate $'3%*

5E1-3$$ Calculation of current ser#ice cost and A:6 8one "erson "lan. Moderate $'3%*E1-3$% Corridor a""roach. Moderate $*3$'

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ASSIGNMENT CHARACTERISTICS TABLE 'Co%$i%*e,(

I$e" Descrip$io%Le)e! of Diffic*!$+

Ti"e'"i%*$es(

1-31 ;ournal entries for a long3term disa!ility !enefit. Moderate $*3$'1-3$ (efined !enefit "lan for sa!!atical lea#e. Com"le0 %'3&'1-3% Immediate 4ecognition A""roach under I/42 3

Three3year continuity schedules, 9ournal entries,and statement "resentation.

Com"le0 &'3''

1-3& Com"arison of (eferral and Amorti7ation A""roach under A2E #s. Immediate4ecognition A""roach under I/42.

Moderate &*3'*

1-3' A2E #ersus I/42 8 (: analysis. Com"le0 &*3'*1-3) (: 8 A2E deferral and amorti7ation a""roach Com"le0 &'3''1-3 (eferral and Amorti7ation A""roach 3 ension

e0"ense, 9ournal entries, note disclosure and

orksheet.

Com"le0 &'3''

1-3 Calculation of "ast ser#ice cost amorti7ation, 9ournal entries, net gain or loss and amorti7ation,and determination of funded status under(eferral and Amorti7ation #ersus Immediate4ecognition A""roach.

Com"le0 &'3)*

1-3- (eferral and Amorti7ation #ersus Immediate4ecognition A""roach 8 o"tions a#aila!le foractuarial gains<losses.

Moderate %'3&'

1-31* /unded status for (: under Immediate4ecognition =I/42> #ersus (eferral and

Amorti7ation =A2E> #ersus Immediate

4ecognition A""roach =A2E>.

Com"le0 &'3)*

1-311 Com"rehensi#e ork sheet and 9ournal entries. Com"le0 &*3&'1-31$ Com"rehensi#e "ension ork sheet and 9ournal

entries.Moderate %*3%'

1-31% ost3retirement !enefit e0"ense, amorti7ation oftransitional amount, and continuity of A:6 and"lan assets.

Moderate %*3%'

51-31& Calculation of (:6 and "ast ser#ice cost 8 one"erson "lan

Com"le0 &*3&'

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SOLUTIONS TO BRIEF E-ERCISES

BRIEF E-ERCISE 19.1

'/( #i$0 2 "i!!io% i% $o$/! /sse$s !ess 234 "i!!io% i% $o$/!!i/i!i$ies5 $0e co"p/%+6s s$/$e"e%$ of fi%/%ci/! posi$io% /sof Dece"er 715 81: s0o;s $o$/! s0/re0o!,ers6 e<*i$+ of '34 "i!!io%(3 #i$0 /%%*/! pe%sio% expe%se of 8 "i!!io% i%81:5 i$ /ppe/rs $0/$ $0e pe%sio% p!/% c/*se, profi$ /%,re$/i%e, e/r%i%&s $o ,ecre/se + 8 "i!!io% i% 81:5 /%,c/*se, re$/i%e, e/r%i%&s $o ,ecre/se $o / ,efici$ /%,s0/re0o!,ers6 e<*i$+ $o eco"e %e&/$i)e3 T0e pe%sio% p!/%is *%,erf*%,e, + 134 "i!!io% '=34 "i!!io% o!i&/$io% !ess2 "i!!io% f/ir )/!*e of p!/% /sse$s( /s of Dece"er 715

81:5 res*!$i%& i% / %e$ ,efi%e, e%efi$ !i/i!i$+ of 134"i!!io%3 T0e %e$ ,efi%e, e%efi$ !i/i!i$+ represe%$s 87> of $o$/! !i/i!i$ies5 /%, ;i!! /ffec$ $0e co"p/%+6s so!)e%c+r/$ios s*c0 /s ,e$ $o $o$/! /sse$s r/$io3

'( I% /,,i$io% $o $0e c/s0 co%$ri*$io%s $0e co"p/%+ "/?es$o $0e p!/%5 $0e co"p/%+ i%c*rs $0e cos$ of /,"i%is$eri%&$0e p!/%5 $0e oppor$*%i$+ cos$ of *si%& $0e c/s0 for o$0er p*rposes i% $0e *si%ess5 /%, $0e po$e%$i/!!+ 0i&0er

fi%/%ci%& cos$s ,*e $o 0i&0er so!)e%c+ ris? /s / res*!$ of $0e *%,erf*%,e, pe%sio% p!/%3

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BRIEF E-ERCISE 19.8

'/( IFRS

P/s$ ser)ice cos$ reco&%i@e, i""e,i/$e!+ i% expe%se :4574C*rre%$ ser)ice cos$ '85=7852: 7>( 1592

Pe%sio% expe%se for 81: 98=5772

'( ASPE

P/s$ ser)ice cos$ /"or$i@e, o)er fi)e +e/rs':4574 4 +e/rs( 1295=

C*rre%$ ser)ice cos$ '85=7852: 7>( 1592

Pe%sio% expe%se for 81: 841542

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BRIEF E-ERCISE 19.7

A Defi%e, Co%$ri*$io% P!/% 'DC(A ,efi%e, co%$ri*$io% 'DC( p!/% is / pos$.e"p!o+"e%$ e%efi$p!/% $0/$ specifies 0o; $0e e%$i$+6s co%$ri*$io%s or p/+"e%$si%$o $0e p!/% /re ,e$er"i%e,5 r/$0er $0/% i,e%$if+i%& ;0/$e%efi$s ;i!! e recei)e, + $0e e"p!o+ee or $0e "e$0o, of ,e$er"i%i%& $0ose e%efi$s3

For / DC pe%sio% p!/%5 $0e /"o*%$s $0/$ /re co%$ri*$e, /re*s*/!!+ $*r%e, o)er $o /% i%,epe%,e%$ $0ir, p/r$+ or $r*s$ee ;0o/c$s o% e0/!f of $0e e%efici/ries '$0e p/r$icip/$i%& e"p!o+ees(3T0e $r*s$ee /ss*"es o;%ers0ip of $0e pe%sio% /sse$s /%, isrespo%si!e for $0eir i%)es$"e%$ /%, ,is$ri*$io%3 T0e $r*s$ is

sep/r/$e /%, ,is$i%c$ fro" $0e e"p!o+er3

T0e *!$i"/$e ris?s /%, re;/r,s of $0e DC pe%sio% p!/% res$s ;i$0$0e e"p!o+ees /s $0e e"p!o+er6s i%)o!)e"e%$ is esse%$i/!!+!i"i$e, $o "/?i%& $0e /%%*/! co%$ri*$io% e/c0 +e/r3

T0erefore5 $0e /cco*%$i%& for / DC pe%sio% p!/% is re!/$i)e!+s$r/i&0$.for;/r,3 T0e e"p!o+er6s o!i&/$io% is ,ic$/$e, + $0e/"o*%$s $o e co%$ri*$e,3 T0erefore5 / !i/i!i$+ is repor$e, o%$0e e"p!o+er6s s$/$e"e%$ of fi%/%ci/! posi$io% o%!+ if $0ere<*ire, co%$ri*$io%s 0/)e %o$ ee% "/,e i% f*!!5 /%, /% /sse$is repor$e, if "ore $0/% $0e re<*ire, /"o*%$ 0/s ee%co%$ri*$e,3

T0e /%%*/! e%efi$ cos$ 'i3e35 $0e pe%sio% expe%se( is si"p!+ $0e/"o*%$ $0/$ $0e co"p/%+ is o!i&/$e, $o co%$ri*$e $o $0e p!/%3


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BRIEF E-ERCISE 19.7 'Co%$i%*e,(

A Defi%e, Be%efi$ 'DB( P!/%

A ,efi%e, e%efi$ 'DB( p!/% is /%+ e%efi$ p!/% $0/$ is %o$ /,efi%e, co%$ri*$io% p!/%3 I$ is / p!/% $0/$ specifies ei$0er $0ee%efi$s $o e recei)e, + /% e"p!o+ee or $0e "e$0o, of ,e$er"i%i%& $0ose e%efi$s3

Si"i!/r $o / DC p!/%5 for / DB pe%sio% p!/%5 $0e /"o*%$s $0/$ /reco%$ri*$e, /re *s*/!!+ $*r%e, o)er $o /% i%,epe%,e%$ $0ir,p/r$+ or $r*s$ee ;0o /c$s o% e0/!f of $0e e%efici/ries3

T0e *!$i"/$e ris?s /%, re;/r,s of $0e DB pe%sio% p!/% res$s ;i$0

$0e e"p!o+er si%ce $0e e"p!o+er "*s$ &*/r/%$ee $0/$ / se$re$ire"e%$ e%efi$ ;i!! e p/i, $o $0e e"p!o+ees3 T0e e%efi$s$+pic/!!+ /re / f*%c$io% of /% e"p!o+ee6s +e/rs of ser)ice /%,co"pe%s/$io% !e)e! i% $0e +e/rs /ppro/c0i%& re$ire"e%$3

To e%s*re $0/$ /ppropri/$e reso*rces /re /)/i!/!e $o p/+ $0ee%efi$s /$ re$ire"e%$5 $0ere is *s*/!!+ / re<*ire"e%$ $0/$ f*%,se se$ /si,e ,*ri%& $0e ser)ice !ife of $0e e"p!o+ees3

T0erefore5 /cco*%$i%& for / DB pe%sio% p!/% is "*c0 "oreco"p!ex3 T0e pe%sio% cos$ /%, ,efi%e, e%efi$ o!i&/$io%,epe%,s o% "/%+ f/c$ors s*c0 /s e"p!o+ee $*r%o)er5 "or$/!i$+5!e%&$0 of ser)ice5 /%, co"pe%s/$io% !e)e!s5 /s ;e!! /si%)es$"e%$ re$*r%s $0/$ /re e/r%e, o% pe%sio% /sse$s5 i%f!/$io%5/%, o$0er eco%o"ic co%,i$io%s o)er !o%& perio,s of $i"e3

Bec/*se $0e cos$ $o $0e co"p/%+ is /ffec$e, + / ;i,e r/%&e of *%cer$/i% f*$*re )/ri/!es5 i$ is %o$ e/s+ $o "e/s*re $0e pe%sio%cos$ /%, !i/i!i$+ $0/$ 0/)e $o e reco&%i@e, e/c0 perio, /s

e"p!o+ees pro)i,e ser)ices $o e/r% $0eir pe%sio% e%$i$!e"e%$3

No$e T0is is %o$ i%$e%,e, $o e / co"pre0e%si)e ,isc*ssio% of /!! iss*es /ssoci/$e, ;i$0 $0e DB pe%sio% p!/%5 *$ r/$0er5 $o0i&0!i&0$ so"e of $0e ?e+ ,iffere%ces e$;ee% / DB /%, DCpe%sio% p!/%3


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BRIEF E-ERCISE 19.:

Defined benefit obligation, opening balance $92

Interest cost 9

Current service cost 21Benefits paid to retirees (8)

Past service cost 13

Defined benefit obligation, ending balance 18=

BRIEF E-ERCISE 19.4

E%,i%& p!/% /sse$s 15=45

Be&i%%i%& p!/% /sse$s15745

I%cre/se i% p!/% /sse$s :5

De,*c$ Co%$ri*$io%s 1=5Less e%efi$s p/i, '1:5( '75(

Ac$*/! re$*r% o% p!/% /sse$s 7=5

BRIEF E-ERCISE 19.2

Plan assets, opening balance $100

Actual return on plan assets 11

Contributions from employer 20Be%efi$s p/i, $o re$irees ' (

Plan assets, ending balance 187

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Defi%e, e%efi$ o!i&/$io% 'BE 19.:( '18=(

P!/% /sse$s /$ f/ir )/!*e 187

P!/%6s f*%,e, s$/$*s ':(

Si%ce $0e ,efi%e, e%efi$ o!i&/$io% excee,s $0e p!/% /sse$s5 $0ep!/% is *%,erf*%,e,3

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BRIEF E-ERCISE 19.=

Accr*e, e%efi$ o!i&/$io% 75:5

F/ir )/!*e of p!/% /sse$s

85:85

F*%,e, s$/$*s %e$ !i/i!i$+ 95

U%reco&%i@e, p/s$ ser)ice cos$ ',ei$(

995

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ 15

BRIEF E-ERCISE 19.

C*rre%$ ser)ice cos$ 895

I%$eres$ o% ABO 885

Expec$e, re$*r% o% p!/% /sse$s '85(

A"or$i@/$io% of *%reco&%i@e, prior ser)ice cos$ 1458

A"or$i@/$io% of *%reco&%i@e, %e$ /c$*/ri/! !oss 4

Pe%sio% expe%se :25=

BRIEF E-ERCISE 19.9

P/s$ ser)ice cos$ 74C*rre%$ ser)ice cos$ 19


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I%$eres$ cos$ 11

Expec$e, re$*r% o% p!/% /sse$s *si%& ,isco*%$ r/$e '11(

Pe%sio% expe%se 4:

Re"e/s*re"e%$ &/i% or !oss 'OCI(

Ac$*/ri/! !oss o% f*%, /sse$s '11 . 9( 8

Ac$*/ri/! !oss o% DBO 14

To$/! re"e/s*re"e%$ !oss OCI 1=

U%,er IFRS5 $0e pe%sio% p!/% res*!$s i% $o$/! pe%sio% expe%se/%, ,ecre/se i% %e$ i%co"e /%, s0/re0o!,ers6 e<*i$+ of 4:5 /%,

$o$/! re"e/s*re"e%$ !oss OCI /%, ,ecre/se i% /cc*"*!/$e,o$0er co"pre0e%si)e i%co"e of 1=3

BRIEF E-ERCISE 19.1


I%$eres$ cos$ '815 - 1>( 815

Expec$e, re$*r% o% p!/% /sse$s *si%& ,isco*%$ r/$e


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85 '==5 - 218( - 1> '8754(

Pe%sio% expe%se 44514

Re"e/s*re"e%$ &/i% or !oss 'OCI(Ac$*/ri/! &/i% o% f*%, /sse$s '845 . 8754( '1514(

Ac$*/ri/! !oss o% DBO1:5

To$/! re"e/s*re"e%$ !oss OCI 1854

U%,er IFRS5 $0e pe%sio% p!/% res*!$s i% $o$/! pe%sio% expe%se

/%, / re!/$e, ,ecre/se i% %e$ i%co"e /%, s0/re0o!,ers6 e<*i$+ of 445145 /%, / $o$/! re"e/s*re"e%$ !oss OCI /%, ,ecre/se i%/cc*"*!/$e, o$0er co"pre0e%si)e i%co"e of 18543


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BRIEF E-ERCISE 19.11

'/( IFRS

UDDIN CORPORATION

Ge%er/! o*r%/! E%$ries Me"o Recor,

I$e"s

Re"e/s*.re"e%$'G/i%(

Loss. OCI

A%%*/!Pe%sio%Expe%se C/s0

Ne$ Def3Be%efi$

Li/i!i$+Asse$

Defi%e,Be%efi$

O!i&/$io%P!/%

Asse$s

1117Ser)ice cos$I%$eres$ cos$Exp3 re$*r%Re"e/s*re"e%$&/i%

P/s$ s)ce cos$Co%$ri*$io%sBe%efi$s P/i,Exp3 E%$r+Co%$r3 e%$r+B/!3 187117

45 Cr

45 Cr

8=54 Dr 845 Dr 845 Cr

895 Dr3

Dr895

4254 Dr

85 Cr

85 Cr

..

4154 Cr 85 Dr

7154 Cr

845 Cr

8=54 Cr

845 Cr

895 Cr

1=54 Dr

71:5 Cr

845 Dr

845 Dr

45 Dr

85 Dr

1=54 Cr

8854 Dr

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BRIEF E-ERCISE 19.11 'Co%$i%*e,(

'( ASPE

UDDIN CORPORATION


I$e"s


Ne$ Def3Be%efi$

Li/i!i$+Asse$

Accr*e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco&.%i@e,

P/s$ S)ce3Cos$

U%/"or.$i@e,

Ac$*/ri/!G/i%

1117Ser)ice cos$I%$eres$ cos$Exp3 re$*r%Asse$ &/i%P/s$ s)ce cos$Co%$ri*$io%s

Be%efi$s P/i,Exp3 E%$r+Co%$r3 e%$r+B/!3 187117

8=54 Dr 845 Dr 845 Cr

5

Dr 8=54 Dr

85 Cr

5 Dr

85 Cr

8=54 Cr 85 Dr

=54 Cr

845 Cr

8=54 Cr

845 Cr

895 Cr

1=54 Dr 5 Cr

71:5 Cr

845 Dr

845 Dr

45 Dr

85 Dr

1=54 Cr 5 Cr

8854 Dr

895 Dr

895 Dr

45 Cr

45 Cr

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C*rre%$ ser)ice cos$ 8=54

I%$eres$ o% ABO 845

Ac$*/! re$*r% o% p!/% /sse$s '75(



'/(

U%,er IFRS5 o%!+ $0e i""e,i/$e reco&%i$io% /ppro/c0 isper"i$$e, /%, p/s$ ser)ice cos$s /re reco&%i@e, i""e,i/$e!+ i%%e$ i%co"e3 T0erefore5 $0e e%$ire 151845 ;i!! e i%c!*,e, i%pe%sio% expe%se for 8173

'(

U%,er $0e ASPE ,eferr/! /%, /"or$i@/$io% /ppro/c05 $0e151845 of p/s$ ser)ice cos$s is /"or$i@e, $o expe%se o)er 14+e/rs5 ;0ic0 is $0e expec$e, perio, of e%efi$ fro" $0e $i"e of /,op$io% or /"e%,"e%$ *%$i! $0e e"p!o+ees /re e!i&i!e for $0ep!/%6s f*!! e%efi$s3 T0erefore5 $0e por$io% of p/s$ ser)ice cos$si%c!*,e, i% $0e 817 pe%sio% expe%se is =45 '151845 14(3


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BRIEF E-ERCISE 19.1:

B/se, o% $0e /c$*/ri/! repor$5 $0ere is / 7157 /c$*/ri/! !oss3

'/( U%,er IFRS5 $0e e%$ire 7157 /c$*/ri/! !oss is reco&%i@e,i""e,i/$e!+ i% o$0er co"pre0e%si)e i%co"e3

'( U%,er ASPE5 $0ere /re $;o op$io%s /)/i!/!e $o /cco*%$ for $0e /c$*/ri/! !oss

• Deferr/! /%, /"or$i@/$io% /ppro/c0 $0e 7157/c$*/ri/! !oss c/% re"/i% *%reco&%i@e, *%$i! $0e $o$/!*%reco&%i@e, &/i%'!oss( excee,s $0e corri,or /"o*%$J 0o;e)er5 / !/r&er /"o*%$ c/% e

reco&%i@e,5 e)e% $o $0e ex$e%$ of i""e,i/$ereco&%i$io%3

• I""e,i/$e reco&%i$io% /ppro/c0 $0e e%$ire 7157/c$*/ri/! !oss is reco&%i@e, i""e,i/$e!+ i% %e$i%co"e3



I%$eres$ cos$ 2454

Expec$e, re$*r% o% p!/% /sse$s ':5(

Pos$.re$ire"e%$ expe%se 9=54


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Pe%sio% expe%se for 817 re!/$e, $o p/s$ ser)ice cos$s

P/s$ ser)ice cos$s ==45A)er/&e +e/rs f*!! e!i&ii!i$+ of e"p!o+ee &ro*p K 1=34A"or$i@/$io% per +e/r

::582

BRIEF E-ERCISE 19.1=

U%reco&%i@e, %e$ /c$*/ri/! !oss :=45

Corri,or '1> - 7575( 775

Excess 1:45

A)er/&e re"/i%i%& ser)ice !ife K =34Mi%i"*" /"or$i@/$io% 195777


Cha"ter 1-

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SOLUTIONS TO E-ERCISES

E-ERCISE 19.1 '4.1 "i%*$es(

'/( Pension Contributions Payable333333333333333333333333 8257C/s03333333333333333333333333333333333333333333333333333333333 8257

'( Pension Expense for December 2014:$276,100 x 5% = $13,805

'c( C*rre%$ !i/i!i$+

Pe%sio% Co%$ri*$io%s P/+/!e ($13,805 x 2) 8=521

T0is /ss*"es /"o*%$s for pre)io*s "o%$0s ;ere re"i$$e,

/s re<*ire, e/c0 "o%$03 A$ Dece"er 715 81: /!! $0/$re"/i%s p/+/!e is $0e /"o*%$ ;i$00e!, fro" e"p!o+ees i%Dece"er /%, $0e re<*ire, e"p!o+er "/$c0i%& /"o*%$3

E-ERCISE 19.8

'/( Pe%sio% Expe%se33333333333333333333333333333333333333333333333 1745

'85 x : 15 x 44( 1745

'( Pension Expense33333333333333333333333333333333333333333333333 1745E"p!o+ee Pe%sio% Co%$ri*$io%s P/+/!e 745

C/s03333333333333333333333333333333333333333333333333333333333 1=5

E"p!o+er por$io% '85 x : 15 x 44( 1745E"p!o+ee co%$ri*$io% '85 x 1 15 x 14( 745'$0e 745 ;o*!, 0/)e ee% i%c!*,e, /s / p/+/!e /$ $0e $i"e

$0/$ $0e re!/$e, S/!/ries /%, #/&es Expe%se ;/s c/!c*!/$e,(3


Cha"ter 1-

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E-ERCISE 19.7 '14.8 "i%*$es(

(a)Defined benefit obligation, 1/1 1: $2,000,000

Interest cost ($2,000,000 x 10%) 200,000

Current service cost 225,000

Past service cost 25,000

Benefits paid out (100,000 )

DBO, 12/31 1: $2,350,000

(b) Plan assets, 1/1 1: $1,600,000

Actual return on plan assets 160,000

Contributions 262,500Benefits paid out (100,000 )

Plan assets, 12/31 1: $1,922,500

(c) Pension expense 2014:

Current service cost $225,000

Interest cost on DBO ($2,000,000 x 10%) 200,000

Actual return on plan assets (160,000)

Past service cost 25,000Pension expense for 2014 $290,000

',( Pe%sio% Expe%se333333333333333333333333333333333333333333 895 Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333 895

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$33333333333333 82854C/s0333333333333333333333333333333333333333333333333333333333 82854

'e( Ne$ ,efi%e, e%efi$ !i/i!i$+'/sse$(, 1/1 1: $ 400,000Contributions (262,500)

Pension expense 290,000

Net defined benefit liability/(asset), 12/31 1: $ 427,500

A!$er%/$i)e!+5 $0e /"o*%$ co*!, /!so e reco%ci!e, /s fo!!o;s2olutions Manual 1-3$*

Cha"ter 1-

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Defi%e, e%efi$ o!i&/$io% '85745(P!/% /sse$s /$ f/ir )/!*e 1598854

DBO i% excess of p!/% /sse$s 'f*%,e, s$/$*s( or Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ ':8=54 (

2olutions Manual 1-3$1

Cha"ter 1-

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E-ERCISE 19.: '14.84 "i%*$es((a)

Ree? Corpor/$io%Pe%sio% #or? S0ee$81:


A%%*/!Pe%sio%

Expe%se C/s0

Ne$ Def3Be%efi$

Li/Asse$

Defi%e,Be%efi$

O!i&/$io%

P!/%

Asse$sB/!/%ce5 1181:Ser)ice cos$I%$eres$ cos$Ac$*/! re$*r%P/s$ ser)ice cos$Co%$ri*$io%sBe%efi$s p/i,o*r%/! e%$r+B/!/%ce5 17181:

8845 Dr3 85 Dr3 125 Cr3 845 Dr3

5 Dr3895 Dr3

82854 Cr35 Dr382854 Cr3

:5 Cr3

8=54 Cr3:8=54 Cr3

855 Cr3 8845 Cr3 85 Cr3

845 Cr3

15 Dr35 Dr3

85745 Cr3

1525 Dr3

125 Dr3

82854 Dr3 15 Cr35 Dr3

1598854 Dr3

85 855 - 1>3

C/!c*!/$io% of f*%,e, s$/$*sDefi%e, e%efi$ o!i&/$io% '85745(P!/% /sse$s /$ f/ir )/!*e 1598854F*%,e, s$/$*s ':8=54 (

2olutions Manual 1-3$$ Cha"ter 1-

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E-ERCISE 19.: 'Co%$i%*e,(

'( Pe%sio% Expe%se333333333333333333333333333333333333333333 895 Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333 895


2olutions Manual 1-3$%

Cha"ter 1-

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E-ERCISE 19.4 '84.7 "i%*$es(

(a) Assume that the company uses the immediate recognition approach under IFRS:

Definedbenefitobligation

Pension planassets

Fundedstatus*

Pensionexpense

Remeasur-ementGain(Loss) -OCI

Current service cost I NE D I NE

Actual return on planassets

NE I or D,dependingon whether itis positive (I)or negative(D)

I or D,dependingonwhether itis positive(I) or

negative(D)

NE NE

Expected return on planassets

NE NE NE D NE

Past service costs on dateof plan revision (inception)

I NE D I NE

Actuarial gain D NE I NE I

Actuarial loss I NE D NE DEmployer contributions NE I I NE NE

Benefits paid to retirees D D NE NE NEAn increase in the averagelife expectancy of

employees.

I NE D NE D as thisis an

actuarialloss

*Assumes an increase in the DBO decreases the funded status and that an increase inthe pension plan assets increases the funded status.

2olutions Manual 1-3$&

Cha"ter 1-

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E-ERCISE 19.4 'Co%$i%*e,(

(b) Assume that the company uses the deferral and amortization approach under

ASPE:

Accruedbenefitobligation

Pension planassets

Fundedstatus*

Pensionexpense

Current service cost I NE D I

Actual return on plan assets NE I or D,dependingon whether itis positive (I)or negative(D)

I or D,dependingon whetherit is positive(I) ornegative (D)

NE

Expected return on planassets NE NE NE D

Past service costs on date ofplan revision (inception)

I NE D NE

Amortization of past servicecosts

NE NE NE I

Actuarial gain/loss D/I NE I/D NE

Amortization of actuarial gainor loss

NE NE NE D (gain)I (loss)

Employer contributions NE I I NE

Benefits paid to retirees D D NE NEAn increase in the average

life expectancy of employees.

I NE D NE

*Assumes an increase in the ABO decreases the funded status and that an increase inthe pension plan assets increases the funded status.

2olutions Manual 1-3$'

Cha"ter 1-

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E-ERCISE 19.2 '1.14 "i%*$es(

C/!c*!/$io% of Ac$*/! Re$*r% o% P!/% Asse$s

F/ir )/!*e of p!/% /sse$s /$ 18711: 1,596,875F/ir )/!*e of p!/% /sse$s /$ 111:

1,418,750I%cre/se i% f/ir )/!*e of p!/% /sse$s 1=5184

De,*c$ Co%$ri*$io%s $o p!/% ,*ri%& 81: 212,500Less e%efi$s p/i, ,*ri%& 81:

218,750 2584Ac$*/! re$*r% o% p!/% /sse$s for 81: 1:57=4

2olutions Manual 1-3$)

Cha"ter 1-

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E-ERCISE 19.= '74.:4 "i%*$es(

'/( Ac$*/! 'E%,i%& Be&i%%i%&( 'Co%$ri*$io%s Be%efi$s(F/ir )/!*e of p!/% /sse$s5

Dece"er 715 817

8592De,*c$ F/ir )/!*e of p!/% /sse$s5/%*/r+ 15 817

1572I%cre/se i% f/ir )/!*e of p!/% /sse$s =72

De,*c$ Co%$ri*$io%s 2:Less e%efi$s p/i, 12 :

Ac$*/! re$*r% o% p!/% /sse$s i% 817 842

'( C/!c*!/$io% of pe%sio% !i/i!i$+ &/i%s /%, !osses /%, pe%sio%/sse$ &/i%s /%, !osses3

13 Differe%ce e$;ee% 187117 /c$*/ri/!!+ c/!c*!/$e, ABO /%,187117 recor,e, Accr*e, e%efi$ o!i&/$io% 'ABO(ABO /$ e%, of +e/r 85912ABO per "e"o recor,s

11

17 ABO 858:A,, i%$eres$ '1>(

88:

A,, ser)ice cos$

78

Less e%efi$ p/+"e%$s

'12 ( 8528:

Li/i!i$+ !oss

898

83 Differe%ce e$;ee% /c$*/! f/ir )/!*e of p!/%/sse$s /%, expec$e, f/ir )/!*e187117 /c$*/! f/ir )/!*e of p!/% /sse$s 8592Expec$e, f/ir )/!*e

11 17 f/ir )/!*e of p!/% /sse$s 1572A,, expec$e, re$*r%

'1572 - 1>( 172

A,, co%$ri*$io%s

2:

Less e%efi$s p/i,

'12(

Asse$ &/i%

'18(U%reco&%i@e, %e$ /c$*/ri/! '&/i%( or !oss 1=8


Cha"ter 1-

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E-ERCISE 19.= 'Co%$i%*e,(

'c( Bec/*se %o %e$ /c$*/ri/! &/i% or !oss exis$e, /$ $0e e&i%%i%&of $0e perio,5 %o /c$*/ri/! &/i% or !oss /"or$i@/$io% occ*rs3

T0erefore5 $0e corri,or c/!c*!/$io% is %o$ %ee,e,3I% 81:5 $0e /"or$i@/$io% of $0e /c$*/ri/! !oss ;i!! e /s fo!!o;s

Be&i%%i%&.of.$0e.Ye/r

Ye/r ABO

P!/%

Asse$s

'F(

1>

Corri,or

U%reco.

&%i@e,

Ne$ Loss

Loss

A"or$i.

@/$io%

81: 85912 8592 898 1=8

',( P/s$ ser)ice cos$ /"or$i@/$io%

- 18 :: per +e/r3

'e( Pe%sio% expe%se for 817Ser)ice cos$ 78I%$eres$ cos$ '858: - 1>( 88:Expec$e, re$*r% o% p!/% /sse$s '1572 - 1>( '172(A"or$i@/$io% of p/s$ ser)ice cos$ ::

Pe%sio% expe%se for 817 :48

'f( Reco%ci!i/$io% sc0e,*!eAccr*e, e%efi$ o!i&/$io% '85912(F/ir )/!*e of p!/% /sse$s 8592F*%,e, s$/$*s '8(U%reco&%i@e, p/s$ ser)ice cos$

' ::(

'72U%reco&%i@e, %e$ /c$*/ri/! '&/i%( or !oss 1=8



Cha"ter 1-

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E-ERCISE 19. '7.74 "i%*$es('/(

Bers$!er Li"i$e,Pe%sio% #or? S0ee$817

Ge%er/! o*r%/! E%$ries Me"o Recor, E%$ries

I$e"sA%%*/!Pe%sio%Expe%se C/s0

Ne$ Def3Be%efi$

Li/i!i$+Asse$

Accr*e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco&%i@e,P/s$

Ser)ice Cos$

U%reco&%i@e,Ne$ Ac$*/ri/!

G/i%or Loss

B/!/%ce5 /%3 15 817'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( U%expec$e, &/i%'e( A"or$i@/$io% of PSC'f( Co%$ri*$io%s'&( Be%efi$s p/i,'0( Li/i!i$+ !oss

'i%cre/se(

Expe%se e%$r+817

Co%$ri*$io%sB/!/%ce5 Dec3 715 817

78 Dr388: Dr3172 Cr3

:: Dr3

Dr3:48 Dr3

2: Cr3

Dr3

2: Cr3

:48 Cr3

2: Dr31 Dr3

858: Cr3 78 Cr3 88: Cr3

12 Dr3

898 Cr35 Cr3

85912 Cr3

1572 Dr3

172 Dr3 18 Dr3

2: Dr3 12 Cr3

5 Cr3

8592 Dr3

Dr3

:: Cr3

5 Cr3

72 Dr3

18 Cr3

898 Dr3 Dr3

1=8 Dr3

'( 858: - 1>'c( 172 1572 - 1>',( 18 8592 '1572 172 2: . 12('e( - 18 ::'0( 898 85912 '858: 78 88: 12(

2olutions Manual 1-3$- Cha"ter 1-

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Tenth Canadian Edition

E-ERCISE 19. 'Co%$i%*e,(

'(

o*r%/! e%$ries 1871 17

Pe%sio% Expe%se33333333333333333333333333333333333333333333333333333 :48Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$33333333333333333 :48

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333333333333333333 2:C/s03333333333333333333333333333333333333333333333333333333333333333333 2:

'c( Reco%ci!i/$io% sc0e,*!eAccr*e, e%efi$ o!i&/$io% '85912

(F/ir )/!*e of p!/% /sse$s 8592

F*%,e, s$/$*s '8(

U%reco&%i@e, p/s$ ser)ice cos$' ::(

'72

U%reco&%i@e, %e$ /c$*/ri/! '&/i%( or !oss 1=8


2olutions Manual 1-3%*

Co"yright ? $*1% ;ohn Wiley @ 2ons Canada, td. Bnauthori7ed co"ying, distri!ution, or transmission of this "age is strictly "rohi!ited.

7/25/2019 sm ch (19).doc




E-ERCISE 19.9 '7.74 "i%*$es(

(a)Accrued benefit obligation, 1/1/13 $280,000

Past service cost 50,000330,000

Interest cost ($330,000 x 9%) 29,700



ABO, 12/31/13 $368,700

(b) Plan assets, 1/1/13 $273,100

Actual return on plan assets 26,140Contributions 27,500


Plan assets, 12/31/13 $306,740

(c) Pension expense 2013:

Current service cost $ 29,000

Interest cost ($330,000 x 9%) 29,700

Actual return on plan assets (26,140)Past service cost 50,000

$ 82,560

Pension Expense........................................... 82,560

Net Defined Benefit Liability/Asset....... 82,560

Additionally, though not required, the entry to record the

company’s 2013 contribution:

Net Defined Benefit Liability/Asset.............. 27,500

Cash......................................................... 27,500

(d) Plan’s Funded Status

2olutions Manual 1-3%1


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ABO, 12/31/13 $368,700

Plan assets, 12/31/13 306,740

Balance of Net Defined Benefit Liability/(Asset)

on the statement of financial position $ 61,960

2olutions Manual 1-3%$


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(e) Pension expense 2013:

Current service cost $29,000Interest cost ($330,000 x 9%) 29,700

Expected return on plan assets (9% of $273,100) (24,579)

Amortization of past service cost ($50,000 / 5) 10,000

$44,121

(f) Deferral and amortization pension expense: $44,121

Deduct: amortization of past service cost (10,000)Add: 100% of past service cost 50,000

Add: Expected return on plan assets 24,579

Deduct: Actual return on plan assets (26,140)

$82,560

(g)U%,er $0e i""e,i/$e reco&%i$io% /ppro/c05 pe%sio%

expe%se i%cre/ses /%, %e$ i%co"e ,ecre/ses + 85425/%, %e$ ,efi%e, e%efi$ !i/i!i$+ i%cre/ses + 4452'8542 . 8=54(3 U%,er $0e ,eferr/! /%, /"or$i@/$io%/ppro/c05 pe%sio% expe%se i%cre/ses /%, %e$ i%co"e,ecre/ses + ::51815 /%, %e$ ,efi%e, e%efi$ !i/i!i$+i%cre/ses + 125281 '::5181 . 8=54(3 I% $0is c/se5 $0ei""e,i/$e reco&%i$io% /ppro/c0 ;i!! res*!$ i% !o;er profi$/i!i$+ r/$ios 's*c0 /s re$*r% o% /sse$s /%, re$*r% o%e<*i$+(5 /%, ;e/?er so!)e%c+ r/$ios 's*c0 /s ,e$ $o $o$/!/sse$s /%, c/s0 ,e$ co)er/&e r/$io(5 co"p/re, $o $0e

,eferr/! /%, /"or$i@/$io% /ppro/c03 A cre,i$or s0o*!, re)ie;$0e %o$es $o $0e fi%/%ci/! s$/$e"e%$s ,escrii%& $0eco"p/%+6s /cco*%$i%& po!icies re!/$e, $o i$s pe%sio% p!/%5/%, %o$e $0e effec$ of $0e /cco*%$i%& po!icies o% $0eco"p/%+6s fi%/%ci/! s$/$e"e%$s /%, r/$ios3

2olutions Manual 1-3%%


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E-ERCISE 19.1 '1.14 "i%*$es(

'/( C/!c*!/$io% of pe%sio% expe%se *%,er IFRS *si%& $0e

i""e,i/$e reco&%i$io% /ppro/c0Ser)ice cos$ 245

I%$eres$ cos$ '45 - 31( 45

Expec$e, re$*r% o% p!/% /sse$s ',isco*%$ r/$e( '145(

Pe%sio% expe%se for 817 15

Pe%sio% Expe%se333333333333333333333333333333333333333333333 15Re"e/s*re"e%$ G/i% . OCI333333333333333333333 85Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333 95

Ac$*/ri/! &/i% o% /sse$s 1=5 . 145


'( C/!c*!/$io% of pe%sio% expe%se *%,er ASPE *si%& $0e,eferr/! /%, /"or$i@/$io% /ppro/c0

Ser)ice cos$ 245

I%$eres$ cos$ '45 - 31( 45

Expec$e, re$*r% o% p!/% /sse$s '145 (

Pe%sio% expe%se for 817 15

Pe%sio% Expe%se333333333333333333333333333333333333333333333 15Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333 15

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333333333 945

2olutions Manual 1-3%&


7/25/2019 sm ch (19).doc




C/s03333333333333333333333333333333333333333333333333333333333 945

2olutions Manual 1-3%'


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E-ERCISE 19.11 '84.74 "i%*$es(

(a)Accrued benefit obligation, 1/1/13 $315,000


455,400

Interest cost ($455,400 x 10%) 45,540



ABO, 12/31/13 $520,740

Plan assets, 1/1/13 $297,000Actual return on plan assets ($297,000 x 8%) 23,760*

Contributions 79,200


Plan assets, 12/31/13 $356,760

*Note: expected return = 7%X $297,000 = $20,790, thereforethere is an actuarial gain on the assets of $23,760 - $20,790 =$2,970.

A"o*%$ of Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$ o% $0e /!/%ce

s0ee$

Accr*e, e%efi$ o!i&/$io% '485=:(P!/% /sse$s /$ f/ir )/!*e 7425=2

ABO i% excess of p!/% /sse$s '12759(U%reco&%i@e, p/s$ ser)ice cos$ 118578U%reco&%i@e, /c$*/ri/! &/i% ' 859=( 19574

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '4:527 (

(b) Pension expense 2013:


Interest cost ($455,400 x 10%) 45,540

2olutions Manual 1-3%)


7/25/2019 sm ch (19).doc




Expected return on plan assets (7% of $297,000)(20,790)


$115,830



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(c)Accrued benefit obligation, funding basis, 1/1/13 $255,000

Past service cost 1:5:395,400

Interest cost ($395,400 x 10%) 39,540



ABO, 12/31/13 $454,740

Plan assets, 1/1/13 $297,000

Actual return on plan assets ($297,000 x 8%) 23,760



Plan assets, 12/31/13 $356,760

A"o*%$ Repor$e, o% $0e /!/%ce s0ee$

Accr*e, e%efi$ o!i&/$io% ':4:5=:(P!/% /sse$s /$ f/ir )/!*e 7425=2

F*%,e, s$/$*s /%, Ne$ ,efi%e, e%efi$'!i/i!i$+(/sse$ '9=59 (

(d) Pension expense 2013:


Interest cost ($395,400 x 10%) 39,540



$219,180



7/25/2019 sm ch (19).doc




E-ERCISE 19.18 '8.84 "i%*$es(

'/( Pe%sio% expe%se for 817 co"prise, $0e fo!!o;i%&


I%$eres$ o% /ccr*e, e%efi$ o!i&/$io% 95

'9> - 155(

Expec$e, re$*r% o% p!/% /sse$s

'4:5(

A"or$i@/$io% of p/s$ ser)ice cos$ :5


'( Pe%sio% Expe%se333333333333333333333333333333333333333333333 1785Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333

1785

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333333333 1:45C/s03333333333333333333333333333333333333333333333333333333333

1:4533333333333333333333333333333333333333333333333333333333333333

'c( Accr*e, e%efi$ o!i&/$io% 'cre,i$( '1( '151:25(P!/% /sse$s /$ f/ir )/!*e ',ei$( '8( =995

ABO i% excess of p!/% /sse$s 'or f*%,e, s$/$*s( '7:=5(U%reco&%i@e, p/s$ ser)ice cos$ ',ei$(

Be&i%%i%& /!/%ce5 1117 :5Less /"or$i@/$io% ':5( 725

Ne$ ,efi%e, e%efi$ /sse$ 175

2olutions Manual 1-3%-


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'1( Accr*e, e%efi$ o!i&/$io% 711817 155 425 95 151:25

'8( P!/% /sse$s 711817 25 4:5 1:45

=995

2olutions Manual 1-3&*


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',( I%co"e S$/$e"e%$Pe%sio% expe%se 1785

B/!/%ce S0ee$Asse$s

Ne$ ,efi%e, e%efi$ /sse$ 175

No$e - T0e co"p/%+ spo%sors / ,efi%e, e%efi$ pe%sio%p!/% co)eri%& $0e fo!!o;i%& &ro*p of e"p!o+ees /%,pro)i,i%& $0e fo!!o;i%& e%efi$s3

For $0e +e/r e%,i%& Dece"er 715 81:5 $0e %e$ expe%se for $0e co"p/%+6s pe%sio% p!/% is 17853 T0e prese%$ )/!*eof $0e /ccr*e, e%efi$ o!i&/$io% /$ Dece"er 715 81:5 is151:25 /%, $0e "/r?e$ re!/$e, )/!*e of $0e f*%, /sse$s is=995 /se, o% $0e f/ir "/r?e$ )/!*e of $0e /sse$s o% $0/$,/$e3 T0is res*!$s i% /% *%,erf*%,e, o!i&/$io% of 7:=53E"p!o+er /%, e"p!o+ee co%$ri*$io%s ,*ri%& 81:/"o*%$e, $o 1:45 /%, %o e%efi$s ;ere p/i, o*$3 A$Dece"er 715 81:5 $0e /ccr*e, pe%sio% cos$ /sse$ is1753

O$0er i%for"/$io% $o e ,isc!ose, /ss*"p$io%s $0/$*%,er!ie $0e p!/% s*c0 /s $0e ,isco*%$ r/$e5 $0e r/$e of i%cre/se i% co"pe%s/$io% !e)e!s5 /%, $0e expec$e, !o%&.$er" r/$e of re$*r% o% p!/% /sse$s5 /s ;e!! /s si&%ific/%$/cco*%$i%& po!icies &o)er%i%& $0e pe%sio% p!/%3

'e( Accr*e, e%efi$ o!i&/$io% 1117 'cre,i$( '155(P!/% /sse$s /$ f/ir )/!*e 1117 ',ei$( 25

ABO i% excess of p!/% /sse$s 'or f*%,e, s$/$*s( ':5(U%reco&%i@e, p/s$ ser)ice cos$ 1117 ',ei$( :5

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Ne$ ,efi%e, e%efi$ !i/i!i$+/sse$5 1117

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E-ERCISE 19.17 '4.1 "i%*$es(

Pension expense 2014 – to net income:

Current service cost $ 13,000Interest on ABO (10% of $176,000 + $34,000) 21,000



$ 52,500

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E-ERCISE 19.1: '7.74 "i%*$es(

'/( Ser)ice cos$ 4=5

I%$eres$ o% ,efi%e, pos$.re$ire"e%$ e%efi$

o!i&/$io% '1> - 115( 115

Expec$e, re$*r% o% p!/% /sse$s 1>

':58 (Pos$.re$ire"e%$ e%efi$ expe%se 81: 275

(b)Actuarial loss on assets (3,000 – 4,200) $1,200

Actuarial loss on obligation 31,000

Post-retirement benefit remeasurement

loss – OCI $32,200

(c)Plan assets, 1/1/14 $42,000



Benefits paid out (6,000

)

Plan assets, 12/31/14 $61,000

Defined post-retirement benefit obligation, 1/1/14 $110,000

Interest cost ($110,000 x 10%) 11,000

Service cost 57,000

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Actuarial loss 31,000

Benefits paid out (6,000

)

Defined post-retirement benefit obligation,12/31/14 $203,000

Defined post-retirement benefit obligation,12/31/14'875(P!/% /sse$s /$ f/ir )/!*e 215

Defi%e, pos$.re$ire"e%$ e%efi$ o!i&/$io% i%excess of p!/% /sse$s 'f*%,e, s$/$*s(

'1:85 (

',( Ne$ pos$.re$ire"e%$ e%efi$ !i/i!i$+'/sse$(5 111: 25Pos$.re$ire"e%$ e%efi$ expe%se 81: 275Re"e/s*re"e%$ !oss OCI 7858Co%$ri*$io%s 'f*%,i%&( ,*ri%& 81: '885(Ne$ pos$.re$ire"e%$ e%efi$ !i/i!i$+'/sse$(518711: $142,000

'e( T0ere is %o %ee, $o reco%ci!e $0ese $;o %o; 0/)e $0e

s/"e /!/%ce3

2olutions Manual 1-3&'


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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian

Edition

2olutions Manual 1-3&)


E-ERCISE 19.14 '8.7 "i%*$es((a)

Yor?e I%c3Pe%sio% #or? S0ee$817


I$e"sA%%*/!Pe%sio%Expe%se C/s0

Ne$ Def3Be%3 Li/

Asse$

Defi%e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco.&%i@e,G/i%

'Loss(

B/!/%ce5 /%*/r+ 15 817'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( G/i% o% p!/% /sse$s'e( Co%$ri*$io%s'f( Be%efi$so*r%/! e%$r+5 Dece"er 71

B/!/%ce5 Dec3 715 817

:5 Dr3:1524 Dr3:1524 Cr3

5 Dr3:5 Dr3

75 Cr35 Dr375 Cr3 15 Cr3

15 Cr3

:95 Cr3

:5 Cr3

:1524 Cr3

775: Dr35 Dr3

47584 Cr3

:95 Dr3

:1524 Dr3 54 Dr3

75 Dr3

775: Cr35 Dr3

47257 Dr3

54 Cr3

5

54 Cr3'( :1524 :95 - 343

'c( :1524 :95 - 343

',( 54 :95= :15243

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Pension expense 2013:

Service cost $ 40,000Interest on defined benefit obligation

(8.5% X $490,000) 41,650

Expected return on plan assets (8.5% X $490,000) (41,650 )

$ 40,000

Pension Expense.................................................. 40,000

Net Defined Benefit Liability/Asset.............. 40,000

Net Defined Benefit Liability/Asset..................... 30,000

Cash................................................................ 30,000

T0ese c/!c*!/$io%s co*!, e co"p!e$e, $0ro*&0 / ;or?s0ee$ /ss0o;% o% $0e pre)io*s p/&e3

(b) If the immediate recognition approach was used under IFRS,the following changes to the calculation of pension expense in

part (a) would be required:

1.The $8,050 difference between the actual return on plan

assets of $49,700 and the return on the asset portion of

the net interest cost of 8.5% X $490,000 or $41,650, would

be recorded in the books of the company as a credit to

Remeasurement (Gain) Loss – OCI and a debit to Net

Defined Benefit Liability/Asset. Therefore, the pension

expense included in net income under IFRS is still

$40,000, but there is also a $8,050 remeasurement gain

recognized in OCI.



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2.The Net Defined Benefit Liability/Asset under IFRS is

$8,050 less than under ASPE as the $8,050 benefit is

“booked.” The balance of the Net Defined Benefit

Liability/Asset is therefore $10,000 - $8,050 = $1,950

credit.



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Note: In addition, under IFRS the discount rate used for theobligation is also used for the reduction in benefit expense

due to the return on plan assets. i.e., it is used to calculate the

net interest cost. In this case, co-incidentally, the expected

rate of 8.5% is the same as the discount rate, but often would

not be.

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E-ERCISE 19.12 '14.8 "i%*$es(

'/( T0e excess of c*"*!/$i)e %e$ &/i% or !oss o)er $0e corri,or

/"o*%$ is /"or$i@e, + ,i)i,i%& $0e excess + $0e /)er/&ere"/i%i%& ser)ice perio, of e"p!o+ees3

A"or$i@/$io% of Ne$ 'G/i%( or Loss

Ye/r

Accr*e,Be%efi$

O!i&/$io% '/(P!/%

Asse$s '/( Corri,or '(

C*"*!/$i)eU%reco&%i@e,

'G/i%( Loss '/(

Mi%i"*"A"or$i@/$io%

of 'G/i%(Loss

81781:

814812

:55 :5485

:595 :5845

85:5 8585

8525 75:5

:5 :485

:95 :845

',(:5 ',(

===522= ',( ' 4::5721 'f(

'c( 85777 'c(

87572 'e( 959:= '&(

'/( As of $0e e&i%%i%& of $0e +e/r3'( T0e corri,or is 1> of $0e &re/$er of /ccr*e, e%efi$ o!i&/$io% or p!/%

/sse$s3'c( :5 :485 85J 8518 85777',( :5 75 85777 ===522='e( ===522= :95 8=9522=J 8=9522=18 87572'f( ===522= 87572 815 4::5721'&( 4::5721 :845 1195721J 119572118 959:=

'( IFRS re<*ires $0e i""e,i/$e reco&%i$io% /ppro/c0 $o/cco*%$ for /c$*/ri/! &/i%s or !osses3 T0e /c$*/ri/! &/i%s or !osses /re reco&%i@e, i% o$0er co"pre0e%si)e i%co"ei%s$e/, of %e$ i%co"e3

'c( T0e ASPE ,eferr/! /%, /"or$i@/$io% /ppro/c0 pro)i,es /%op$io% $o reco&%i@e /c$*/ri/! &/i%s or !osses i""e,i/$e!+ /s

;e!!J 0o;e)er5 *%!i?e IFRS5 $0e /c$*/ri/! &/i%s or !osses"*s$ e reco&%i@e, i% %e$ i%co"e /s oppose, $o o$0er co"pre0e%si)e i%co"e3 I% /,,i$io%5 *%,er ASPE5 $0e/ppro/c0 i% p/r$ '/( ,e$er"i%e, $0e "i%i"*" /"o*%$ $oi%c!*,e i% expe%se3 T0e co"p/%+ co*!, 0/)e / po!ic+ $0/$reco&%i@es "ore $0/% $0e "i%i"*"5 *$ !ess $0/% /!! of $0e&/i%s or !osses3

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E-ERCISE 19.1= '1.18 "i%*$es(


I%$eres$ o% ,efi%e, pos$.re$ire"e%$ e%efi$

o!i&/$io% '9> - 158854( 12:584Expec$e, re$*r% o% p!/% /sse$s '9> - 1549=54( '1:75==4 (Pos$.re$ire"e%$ e%efi$ expe%se 8885=4

Remeasurement gain or loss – OCI:

Actuarial loss on fund assets $143,775 - $141,750....................................... $2,025

Post-Retirement Benefit Expense................222,750

Net Retirement Benefit

Liability/Asset.................................. 222,750

Remeasurement Loss (OCI)......................... 2,025


Liability/Asset ................................. 2,025

Net Retirement BenefitLiability/Asset......................................... 47,250

Cash.................................................. 47,250

2olutions Manual 1-3'1


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E-ERCISE 19.1 '14.8 "i%*$es(

'/( See ;or? s0ee$ o% %ex$ p/&e3

(b)Retirement Benefit Expense.........................222,750


Liability/Asset.................................. 222,750

Remeasurement Loss (OCI)......................... 2,025


Liability/Asset ................................. 2,025

Net Retirement BenefitLiability/Asset......................................... 47,250

Cash.................................................. 47,250

2olutions Manual 1-3'$


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E-ERCISE 19.1 '/( 'Co%$i%*e,(

'/( Opsco Corp3 Pos$.re$ire"e%$ Be%efi$ P!/% #or?s0ee$ .

817Re"e/s3

'G/i%(LossOCI

Be%efi$Expe%se

C/s0 Defi%e,Be%efi$

Li/Asse$

DBO

Ope%i%&/!/%ce

8845 Cr3 158854

Ser)ice cos$ 8854Dr3

8854

I%$eres$ cos$ 12:584

Dr3

12:584

Expec$e, re$*r% 1:75==4Cr3

Re"s"$3 !oss 8584 Dr3

Co%$ri*$io%s :=584Cr3

Be%efi$s p/i, 95Expe%se e%$r+ 8584 Dr3 8885=4

Dr388:5==4 Cr3

F*%,i%& e%$r+ :=584Cr3 :=584 Dr3

To$/! :85484 Cr3 8599584

2olutions Manual 1-3'%


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EXERCISE 19-19 (10-15 minutes)

'/( Accr*e, pos$.re$ire"e%$ e%efi$ o!i&/$io%'Cre,i$(

'195(P!/% /sse$s /$ f/ir )/!*e 'Dei$( 175

F*%,e, s$/$*s 'Cre,i$( '25(U%reco&%i@e, p/s$ ser)ice cos$ 'Dei$( ' 115

Accr*e, Be%efi$ Li/i!i$+Asse$ 'Cre,i$( ':95(

185 15 '/"or$i@/$io%(

'(

Defi%e, pos$.re$ire"e%$ e%efi$ o!i&/$io%'Cre,i$(

'195(P!/% /sse$s /$ f/ir )/!*e 'Dei$( 175

F*%,e, s$/$*s 'Cre,i$( /%, Ne$ Defi%e, Be%efi$Li/i!i$+Asse$ 'Cre,i$( '25 (

2olutions Manual 1-3'&


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E-ERCISE 19.8 '84.74 "i%*$es(

'/( No$e A Si&%ific/%$ Acco*%$i%& Po!icies

E"p!o+ee Be%efi$ P!/%s T0e co"p/%+ /ccr*es i$s o!i&/$io%s *%,er e"p!o+ee

e%efi$ p!/%s /%, $0e re!/$e, cos$s5 %e$ of p!/% /sse$s5 *si%&$0e ,eferr/! /%, /"or$i@/$io% /ppro/c03 T0e co"p/%+ 0/s/,op$e, $0e fo!!o;i%& po!icies T0e cos$ of pe%sio%s e/r%e, + e"p!o+ees is /c$*/ri/!!+

,e$er"i%e, *si%& $0e /ccr*e, e%efi$ "e$0o, pror/$e, o%ser)ice /%, "/%/&e"e%$s es$ es$i"/$e of expec$e, p!/%i%)es$"e%$ perfor"/%ce5 s/!/r+ esc/!/$io%5 re$ire"e%$ /&esof e"p!o+ees3

For $0e p*rpose of c/!c*!/$i%& $0e expec$e, re$*r% o% p!/%/sse$s5 $0ose /sse$s /re )/!*e, /$ f/ir )/!*e3

P/s$ ser)ice cos$s fro" p!/% /"e%,"e%$s /re /"or$i@e, o%/ s$r/i&0$.!i%e /sis o)er $0e /)er/&e re"/i%i%& ser)iceperio, of e"p!o+ees /c$i)e /$ $0e ,/$e of /"e%,"e%$3

T0e excess of $0e %e$ /c$*/ri/! &/i% '!oss( o)er 1> of $0e&re/$er of $0e e%efi$ o!i&/$io% /%, $0e f/ir )/!*e of p!/%/sse$s is /"or$i@e, o)er $0e /)er/&e re"/i%i%& ser)iceperio, of /c$i)e e"p!o+ees3 T0e /)er/&e re"/i%i%& ser)ice

perio, of $0e /c$i)e e"p!o+ees co)ere, + $0e pe%sio%p!/% is 12 '/ss*"e,( +e/rs '818( /%, 14 '/ss*"e,( +e/rs'817(3


As of Dece"er 715 8175 $0e %e$ expe%se for $0e co"p/%+6spe%sio% p!/% is 1=1578 '9:5 8475 1=452(3T0e prese%$ )/!*e of $0e /ccr*e, e%efi$ o!i&/$io% /$Dece"er 715 8175 ;/s 85=7=5 /%, $0e "/r?e$ re!/$e,)/!*e of $0e f*%, /sse$s ;/s 858=5789 /se, o% $0e f/ir "/r?e$ )/!*e of $0e /sse$s o% $0/$ ,/$e3 T0is res*!$s i% /%*%,erf*%,e, o!i&/$io% of :452=13 E"p!o+er co%$ri*$io%s,*ri%& 817 /"o*%$e, $o 985789 /%, e%efi$s p/i,

2olutions Manual 1-3''


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/"o*%$e, $o 1:53 A$ Dece"er 715 8175 $0e /ccr*e,pe%sio% !i/i!i$+ is ':185991(3


O$0er i%for"/$io% $o e ,isc!ose, /ss*"p$io%s $0/$*%,er!ie $0e p!/% s*c0 /s $0e ,isco*%$ r/$e5 $0e r/$e of i%cre/se i% co"pe%s/$io% !e)e!s5 /%, $0e expec$e, !o%&.$er" r/$e of re$*r% o% p!/% /sse$s3

'(/%, 'c(

No$e A Si&%ific/%$ Acco*%$i%& Po!icies E"p!o+ee Be%efi$ P!/%s T0e co"p/%+ /ccr*es i$s o!i&/$io%s *%,er e"p!o+ee

,efi%e, e%efi$ p!/%s /%, $0e re!/$e, cos$s5 %e$ of p!/%/sse$s5 *si%& $0e i""e,i/$e reco&%i$io% /ppro/c03


I%for"/$io% /o*$ $0e co"p/%+6s ,efi%e, e%efi$ p!/% is /sfo!!o;s

Defined benefit obligation:

Balance at beginning of year, therefore $2,530,000

Interest cost—given 253,000

Current service cost—given 94,000

Benefits paid—given (140,000 )

Balance at end of year—given $2,737,000

Plan assets:

Fair value at beginning of year, therefore $2,196,000

Actual return on plan assets—given 130,000

Employer contributions—given 92,329

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Benefits paid—given (140,000 )

Fair value at end of year—given $2,278,329



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Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$

Defi%e, e%efi$ o!i&/$io% '85=7=5(P!/% /sse$s /$ f/ir )/!*e 858=5789F*%,e, s$/$*s /%,

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ ':452=1

(

Pe%sio% expe%se

Current service cost—given $ 94,000

Interest cost—given 253,000

Expected return on plan assets—given (175,680 )

Pension expense $ 171,320

Re"e/s*re"e%$ 'G/i%( Loss . OCI

Actuarial loss on fund assets:

$175,680 - $130,000 = $ 45,680

Remeasurement (Gain) Loss - OCI $ 45,680

O$0er i%for"/$io% $o e ,isc!ose, /ss*"p$io%s $0/$*%,er!ie $0e p!/% s*c0 /s $0e ,isco*%$ r/$e5 $0e r/$e of i%cre/se i% co"pe%s/$io% !e)e!s5 ;0/$ $+pe of /sse$s "/?e*p $0e pe%sio% f*%, /sse$s5 $0e ,/$es of $0e "os$ rece%$/c$*/ri/! re)/!*/$io%s5 e$c3



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'c( T0e e&i%%i%& /!/%ces of ,efi%e, e%efi$ o!i&/$io%5 /%,pe%sio% p!/% /sse$s /re s0o;% i% p/r$ '( o% $0e pre)io*s p/&e3

Ne$ ,efi%e, e%efi$ !i/i!i$+'/sse$(Defi%e, e%efi$ o!i&/$io%5 1117 85475P!/% /sse$s /$ f/ir )/!*e5 1117 851925F*%,e, s$/$*s !i/i!i$+'/sse$( /%,

Ne$ ,efi%e, e%efi$ !i/i!i$+'/sse$(5 1117 77:5

A!$er%/$i)e!+5

Ne$ ,efi%e, e%efi$ !i/i!i$+'/sse$(5 187117 $458,671Pension expense (171,320)Employer contributions 92,329Re"e/s*re"e%$ G/i% 'Loss( . OCI ':452(Ne$ ,efi%e, e%efi$ !i/i!i$+'/sse$(5 1117 $334,000

2olutions Manual 1-3'-


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E-ERCISE 19.81 '84.7 "i%*$es(

'/( P/s$ ser)ice cos$s *%,er ASPE /re /"or$i@e, o% / s$r/i&0$.!i%e /sis o)er $0e perio, $0e fir" expec$s $o re/!i@e $0eeco%o"ic e%efi$s fro" $0e c0/%&e i% $0e p!/%3

C/!c*!/$io% of Ser)ice.Ye/rs

E"p!o+ee

Expec$e, Ye/rs of Ser)ice To$/!

Br/%,o% 7 7

C0i/r/ 4 4Mi?/+!/ 2 2

A%&e!/ 4 4

P/o!o : :

Er"i%i/ = =

To$/! 7

Expec$e, /)er/&e re"/i%i%& ser)ice !ife

= 30 6 employees = 5 years

P/s$ ser)ice cos$ 817 $0ro*&0 81= 7:5 4 25

P/s$ ser)ice cos$ /"or$i@/$io% ;o*!, e co"p!e$e /$ $0e e%, of 81=5 $0erefore5 $0ere ;o*!, e %o /"or$i@/$io% i% 813

'( P/s$ ser)ice cos$s *%,er IFRS /re expe%se, i""e,i/$e!+ i%%e$ i%co"e3 T0erefore5 $0e 7:5 of p/s$ ser)ice cos$s ;i!!e expe%se, i""e,i/$e!+ i% 8175 res*!$i%& i% %o

/"or$i@/$io% i% 81: /%, e+o%,3

2olutions Manual 1-3)*


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*E-ERCISE 19.88 '84.7 "i%*$es(

'/( T0e e"p!o+ee6s expec$e, fi%/! s/!/r+ i% 878 ;o*!, e

c/!c*!/$e, /s fo!!o;s:5 - '13:(82 11599

'i% 8= +e/rs $0ere ;o*!, e 82 r/ises(

'( S$ep 1 C/!c*!/$e /%%*/! pe%sio% e%efi$ o% re$ire"e%$fro" ;or?i%& i% 81:

A%%*/! pe%sio% e%efi$s o% re$ire"e%$ 834> - 11599 - 1 +e/r

85==8 per +e/r of re$ire"e%$

S$ep 8 Disco*%$ $0e prese%$ )/!*e of $0e /%%*i$+ of 85==8for 81 +e/rs /$ 2> $o Dece"er 715 8783

Prese%$ )/!*e of /% /%%*i$+ of 85==8 ,isco*%$e, /$ 2> for81 perio,s'85==8 - 113=2:( 78521

Usi%& / fi%/%ci/! c/!c*!/$orP Q

Yie!,s 78521

I 2>

N 81

PMT '85==8(

F

T+pe

Exce! for"*!/ P'r/$e5%per5p"$5f)5$+pe(

2olutions Manual 1-3)1


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*E-ERCISE 19.88 'Co%$i%*e,(

S$ep 7 Disco*%$ $0e prese%$ )/!*e of $0e /%%*i$+ i% 878 $o

i$s prese%$ )/!*e /$ 81:

Prese%$ )/!*e of 78521 ,isco*%$e, /$ 2> for 1 +e/rs'78521 - 3747:( 115:84'1 +e/rs 817 $o 878(

Usi%& / fi%/%ci/! c/!c*!/$or

P Q

Yie!,s 115:84

I 2>

N 1

PMT

F '78521

(

T+pe


T0e c*rre%$ ser)ice cos$ re!/$i)e $o $0is p!/% for 81: ;o*!,

e 115:843

'c( Pe%sio% e%efi$s e/r%e, fro" /%*/r+ 15 89 $o Dece"er715 81:

834> - 11599 - 2 +e/rs 125274 per +e/r of re$ire"e%$3

Prese%$ )/!*e /$ Dece"er 715 878 of /% /%%*i$+ of 125274,isco*%$e, /$ 2> for 81 perio,s'125277 - 113=2:( 19452=2

2olutions Manual 1-3)$


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*E-ERCISE 19.88 'Co%$i%*e,(

Usi%& / fi%/%ci/! c/!c*!/$or

P Q Yie!,s 19452=2

I 2>

N 81

PMT '125277(

F

T+pe


T0e ,efi%e, e%efi$ o!i&/$io% represe%$s $0e prese%$ )/!*eof$0is /"o*%$ ,isco*%$e, /$ 2> for 1 +e/rs

Prese%$ )/!*e of 19452=2 ,isco*%$e, /$ 2> for 1 +e/rs'19452=2 - 3747:( 2544

Usi%& / fi%/%ci/! c/!c*!/$or

P Q Yie!,s 2544

I 2>

N 1

PMT

F '19452=2

(

T+pe


T0e ,efi%e, e%efi$ o!i&/$io% /$ Dece"er 715 81: ;o*!,e 25443

2olutions Manual 1-3)%


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E-ERCISE 19.87 '8.84 "i%*$es(

Corri,or /%, Mi%i"*" Loss A"or$i@/$io%

Ye/r

Accr*e,Be%efi$

O!i&/$io%'/(

P!/%Asse$

/!*e '/(1>

Corri,or

U%reco&%i@e,C*"*!/$i)eNe$ Loss i%

'/(

Mi%i"*"A"or$i.@/$io%

of Loss

81881781:

814

7545:58545=45

2575

757845 :57=45 :5445

45845

745:7=544=54

275

':95 '

2:8584 'c(

2:5481 'e(

' 4584 '(

115889 ',(

154:7'f(

'/( As of $0e e&i%%i%& of $0e +e/r3'( ':95 :7=54( K 1 +e/rs 4584'c( :95 4584 14=54 2:8584',( '2:8584 4=54( K 18 +e/rs 115889'e( 2:8584 115889 1=54 2:5481'f( '2:5481 275( K 18 +e/rs 154:7

2olutions Manual 1-3)&


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TIME AND PURPOSE OF PROBLEMS

ro!lem 1-31 =Time $*3$' minutes>

ur"oseto "ro#ide the student ith an o""ortunity to determine the a""ro"riateaccounting for the costs of a long3term disa!ility !enefit and "re"are the 9ournalentries.

ro!lem 1-3$ =Time %'3&' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation of the lia!ility for a#ested !enefit "lan for sa!!atical lea#e. This is a challenging "ro!lem thatreDuires the student to a""ly the "rinci"les of #ested !enefit "lans to a nesituation.

ro!lem 1-3% =Time &'3'' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires a com"arison of the immediaterecognition a""roach under I/42 #ersus the immediate recognition a""roachunder A2E, and "re"aration of continuity schedules for defined !enefit o!ligation,fund assets and "ension e0"ense for three years+ "ension transactions, threeyears of general 9ournal entries for the "ension "lan, and reconciliation schedulesat the end of each year.

ro!lem 1-3& =Time &*3'* minutes>

ur"oseto "ro#ide a "ro!lem that reDuires a detailed analysis of the re"ortingstandards =and differences> for accounting for a defined !enefit "lan under !oththe deferral and amorti7ation a""roach #ersus the immediate recognitiona""roach.

ro!lem 1-3' =Time &*3'* minutes>

ur"oseto "ro#ide a "ro!lem that reDuires a detailed analysis of the re"ortingstandards =and differences> for accounting for a defined !enefit "lan !eteen theimmediate recognition a""roach under I/42 and the deferral and amorti7ationa""roach under A2E.

ro!lem 1-3) =Time &*3'* minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation of the annual "ensione0"ense, "re"aration of the "ension 9ournal entries, measurement of unrecogni7ed gains and losses and their amorti7ation, and reconciling the fundedstatus to the lia!ility on the statement of financial "osition.

2olutions Manual 1-3)'


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TIME AND PURPOSE OF PROBLEMS 'CONTINUED(

ro!lem 1-3 =Time &'3'' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation of "ension e0"ense,"re"aration of the "ension 9ournal entries, and note disclosure. Amounts reDuiredin the note disclosure must !e calculated using information for to consecuti#eyears. The calculations are com"licated !y missing information that must !ededuced. The "ension orksheet must also !e "re"ared.

ro!lem 1-3 =Time '*3)* minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation of the "ension e0"enseand continuity of the accrued !enefit o!ligation and "lan assets for threese"arate years. The "re"aration of the orksheet for the three consecuti#e yearsis also reDuired. The a""lication of the corridor a""roach to the amorti7ation of gains and losses is reDuired.

ro!lem 1-3- =Time &'3)* minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation and amorti7ation of "astser#ice cost, calculation of "ension e0"ense, calculation and amorti7ation=corridor a""roach> of actuarial gains or losses, "re"aration of "ension 9ournalentries, and reconciliation of the "lan+s funded status to the lia!ility.

ro!lem 1-31* =Time %'3&' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires "re"aration of a ork sheet. The 9ournal entries for "ension3related amounts are also reDuired.

ro!lem 1-311 =Time &*3&' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires the "re"aration of a orksheet and 9ournal entries. The "ro!lem is com"licated !y the em"loyee contri!utions to the"ension "lan. A challenging "ro!lem.

ro!lem 1-31$ =Time %*3%' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires calculation of the amorti7ation of "ast ser#ice cost, "re"aration of a "ension ork sheet and "re"aration of 9ournalentries.

2olutions Manual 1-3))


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TIME AND PURPOSE OF PROBLEMS 'CONTINUED(

ro!lem 1-31% =Time %*3%' minutes>

ur"oseto "ro#ide a "ro!lem that reDuires the calculation of "ost3retirement!enefit e0"ense, the "re"aration of a continuity schedule for accrued o!ligationand "lan assets and a reconciliation schedule for "ost3retirement !enefite0"ense. In addition, the student is reDuired to discuss differences in accountingfor "ost3retirement !enefits and "ension !enefits.

5ro!lem 1-31& =Time &*3&' minutes>

ur"oseto "ro#ide a com"le0 "ro!lem that reDuires the calculation of "ost3retirement !enefit o!ligation !y factoring in changes to the discount rate andsalary assum"tions for a one3"erson "lan. The student must also analy7e thechange in (:6 for a 1 increase and decrease in the discount rate and the "astser#ice costs gi#en the re#ised assum"tions.



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SOLUTIONS TO PROBLEMS

PROBLEM 19.1

T0is is p/r$!+ / ,efi%e, e%efi$ p!/% ec/*se $0e p!/% specifies$0e e%efi$s $o e recei)e, + e"p!o+ees f*!! s/!/r+ for $0e firs$$0ree "o%$0s3 To $0e ex$e%$ $0/$ $0e i%s*r/%ce co"p/%+/ss*"es $0e ris? for $0e !o%&.$er" por$io% of $0e s/!/r+co%$i%*/$io% p!/% for / fixe, pre"i*" of 155 $0is por$io% of $0e e%efi$ p!/% is / ,efi%e, co%$ri*$io% p!/%3

81:

P/+"e%$ of pre"i*" $o i%s*r/%ce co"p/%+

Lo%&.$er" Dis/i!i$+ Be%efi$s Expe%se3333333333333333333333 185

Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e3333333333333333333333 25C/s033333333333333333333333333333333333333333333333333333333333333333333333 15

L/$e Oc$oer5 81:

Lo%&.$er" Dis/i!i$+ Be%efi$s Expe%se3333333333333333333333 1258Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e '45: - 7(1258333333333333333333333333333333333333333333333333333333333333333333333'/se, o% $0e e)e%$ /ccr*/! /ppro/c0 ,isc*sse, i%C0/p$er 17(

No)e"er 81:

Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e33333333333333333333333 45:Cash.......................................................................

5,400

Dece"er5 81:

Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e33333333333333333333333 45:



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Cash.......................................................................5,400

2olutions Manual 1-3)-


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PROBLEM 19.1 'Co%$i%*e,(

814

/%*/r+ 814 p/+"e%$ of $0ir, "o%$06s ;/i$i%& perio,

Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e33333333333333333333333 45:Cash.......................................................................

5,400

P/+"e%$ of pre"i*" $o i%s*r/%ce co"p/%+

Lo%&.$er" Dis/i!i$+ Be%efi$s Expe%se3333333333333333333333 185Lo%&.$er" Dis/i!i$+ Be%efi$s P/+/!e3333333333333333333333 25

C/s03333333333333333333333333333333333333333333333333333333333333333333333315333333333333333333333333333333333333333333333333333333333333333333333



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PROBLEM 19.8

'/( Bec/*se $0e professors 0/)e $o ,o so"e$0i%& $0/$ e%efi$s$0e *%i)ersi$+ ;0i!e $0e+ /re o% s//$ic/!5 $0eir s/!/r+;0i!e o% s//$ic/! is si"p!+ reco&%i@e, /s expe%se i% $0e+e/r $0e+ $/?e i$3 No /"o*%$ %ee,s $o e reco&%i@e, o)er $0e = +e/r perio, !e/,i%& *p $o i$3

'( T0e fo!!o;i%& c/!c*!/$io%s /ss*"e $0/$ %o%e of $0e e%efi$s)es$ prior $o e/r%i%& $0e f*!! s//$ic/!3

C*rre%$s/!/r+

S/!/r+;0e%

e!i&i!e

S/!/r+,*ri%&

s//$ic/!'>(

Por$io%e/r%e,

i%c*rre%$

+e/r '1=(

Prese%$)/!*e

N*"er of

profess.ors

A"o*%$e/r%e, i%

c*rre%$ +e/r

25 2=54= 4:542 =5=88 45172 44 885:=5 =571 27524 959 45998 : 87952

15 1185212 9597 185= 5449 4 :85=9442:5944

S/!/r+ i% 817 - '138(2

A r/$e of 2> is /ss*"e,3

Usi%& / fi%/%ci/! c/!c*!/$orP Q Yie!,s 45172I 2>N =PMT F '=5=88(

T+pe


Si%ce fi)e of $0e professors i% $0e 15 s/!/r+ &ro*pi%&;i!! re$ire5 $0e+ ;i!! %o$ 0/)e ;or?e, $0e %ecess/r+ se)e%+e/rs for $0e e%efi$ $o )es$3



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o*r%/! e%$r+ re<*ire,

Co"pe%s/$io% Expe%se3333333333333333333333333333333333333333333333342:5944Liability for Compensated Absence....................

42:5944

'c(

Liability for Compensated Absence33333333333333333333333333372=5Cash.......................................................................

72=5

No$e T0is e%$r+ ;o*!, e "/,e propor$io%/$e!+ for e/c0 p/+perio, $0ro*&0o*$ $0e fisc/! +e/r ,*ri%& ;0ic0 $0e e"p!o+ees/re p/i, ;0i!e o% s//$ic/!3

',( 13 If $0e sic? !e/)e is /!!o;e, $o e c/rrie, o)er i%$o $0e%ex$ fisc/! perio, /%, e"p!o+ees /re e!i&i!e $o recei)e/ c/s0 p/+"e%$ *po% ,isc0/r&e5 $er"i%/$io% of e"p!o+"e%$ or re$ire"e%$5 'i3e35 $0e e%efi$s /re )es$e,($0e% $0e /"o*%$s re!/$e, $o sic? !e/)e represe%$ /!i/i!i$+ $0/$ s0o*!, e /ccr*e,3

Ho;e)er5 if e"p!o+ees /re o%!+ per"i$$e, $o $/?e $0ep/i, sic? ,/+s if $0e+ /re /c$*/!!+ sic?5 ,iffic*!$ies i%"e/s*ri%& $0e !i/i!i$+ co"i%e, ;i$0 $0e i""/$eri/!i$+of $0e /"o*%$ "/+ "e/% $0/$ $0e U%i)ersi$+ reco&%i@es$0e expe%se /s $0e sic? ,/+s /re /c$*/!!+ $/?e%3

83 If *%*se, sic? $i"e is %o$ e!i&i!e $o e c/rrie, o)er5$0ere is %o f*$*re o!i&/$io% /%, %o e%$r+ is re<*ire,3



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PROBLEM 19.7

'/( IFRS I""e,i/$e Reco&%i$io% Appro/c0 81:Re"e/s3

G/i%LossOCI

Pe%sio%Expe%se

C/s0 Ne$Defi%e,Be%efi$'Li/(Asse$

DBO P!/%Asse$s

Ope%i%&/!/%ce

:25Cr3

:25Dr

Ser)ice cos$ 725 Dr3 725Cr3

I%$eres$ cos$ :25 Dr3 :25Cr3

Expec$e,re$*r%

:25 Cr3 :25Dr

Re"e/s*re."e%$ !oss

259 Dr3 259 Cr

Co%$ri*$io%s 725Cr3

725Dr

Be%efi$s p/i, 7858

Dr3

7858

CrExpe%see%$r+

259 Dr3 725 Dr3 :75=Cr3

F*%,i%& e%$r+ 725Cr3

725Dr3

To$/! 259Cr3

4152Cr3

475=Dr

(b) Continuity of Defined Benefit Obligation – 2014

Defined benefit obligation, 1/1 1: $460,000


Interest cost ($460,000 x 10%) 46,000



7/25/2019 sm ch (19).doc





Defined benefit obligation, 12/31 1: $510,600


Continuity of Defined Benefit Obligation – 2015

Defined benefit obligation, 1/1/15 $510,600

Past service cost, 1/1/15 368,000

878,600


Interest cost ($878,600 x 10%) 87,860Benefits paid out (37,720)


Continuity of Defined Benefit Obligation – 2016



Interest cost ($972,440 x 10%) 97,244

Benefits paid out (48,300)

Actuarial loss 114,816*

Defined benefit obligation, 12/31/16 $1,196,000

*$114,816 = $1,196,000 - $972,440 - $59,800 - $97,244 + $48,300



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(c) Continuity of Fund Assets – 2014

Plan assets, 1/1/14 $460,000




Plan assets, 12/31/14 $503,700

Continuity of Fund Assets – 2015

Plan assets, 1/1/15 $503,700


Contributions ($43,700 + $69,000) 112,700


Plan assets, 12/31/15 $629,050


Plan assets, 1/1/16 $629,050


Contributions ($59,800 + $80,500) 140,300


Plan assets, 12/31/16 $776,250



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(d) Pension expense – 2014

Current service cost

$ 36,800

Interest on defined benefit obligation 46,000

Expected return on plan assets ($460,000 x 10%) (46,000 )

$ 36,800

Pension expense – 2015


$ 43,700


Expected return on plan assets ($503,700 x 10%) (50,370)

Past service cost 368,000$449,190



$ 59,800

Interest on defined benefit obligation 97,244Expected return on plan assets ($629,050 x 10%) (62,905 )

$94,139

'e( o*r%/! e%$ries81:



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Pe%sio% Expe%se3333333333333333333333333333333333333333333333 725Re"e/s*re"e%$ 'G/i%( Loss OCI33333333333333333 259

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333 :75=


259 ':25 - 1>( 7951J expec$e, re$*r%excee,s /c$*/!



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814

Pe%sio% Expe%se3333333333333333333333333333333333333333333333::9519Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333 ::9519

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333333333331185=C/s0333333333333333333333333333333333333333333333333333333333333 1185=

812Pe%sio% Expe%se3333333333333333333333333333333333333333333333 9:5179Re"e/s*re"e%$ 'G/i%( Loss . OCI3333333333333333331885481


Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$3333333333333333331:57C/s0333333333333333333333333333333333333333333333333333333333333 1:57

1885481 '28954 - 1>( 4458 11:512Jexpec$e, re$*r% excee,s /c$*/! /c$*/ri/! !oss

'f( Reco%ci!i/$io% Sc0e,*!e 81:

Defi%e, e%efi$ o!i&/$io% '4152(F/ir )/!*e of p!/% /sse$s 475=

Defi%e, e%efi$ o!i&/$io% i% excess of p!/%/sse$s 'f*%,e, s$/$*s(5 /%, %e$ ,efi%e, e%efi$

'!i/i!i$+(/sse$ '259

(

Reco%ci!i/$io% Sc0e,*!e 814

Defi%e, e%efi$ o!i&/$io% '9=85::(F/ir )/!*e of p!/% /sse$s 28954



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'!i/i!i$+(/sse$

'7:7579 (



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Reco%ci!i/$io% Sc0e,*!e 812

Defi%e, e%efi$ o!i&/$io% '151925(F/ir )/!*e of p!/% /sse$s ==2584


'!i/i!i$+(/sse$ ':195=4 (

(g) Pension expense – 2014


$36,800


Actual return on assets (39,100)

$43,700



$ 43,700




$ 449,190



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$ 59,800



Actuarial loss on DBO 114,816

$216,660



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PROBLEM 19.: (a)

ASPE—defer and amortize:At January 1, 2013, note that the balance of the net defined benefit

liability on the opening statement of financial position must be =

the funded status because there is no information about

unrecognized amounts at that date. The net defined benefit

liability, therefore, was $175,000 - $165,000 = $10,000 cr.

2013

Accrued benefit obligation, 1/1/13 $175,000


253,000

Interest cost ($253,000 x 7%) 17,710



ABO, 12/31/13 $281,710

Plan assets, 1/1/13 $165,000




Plan assets, 12/31/13 $198,200

Ne$ /c$*/ri/! &/i% i% 817 $0e ,iffere%cee$;ee% $0e /c$*/! re$*r% of 1758 /%, $0e expec$e, re$*r% of11544 'or => - 1245( 15243

Acco*%$s repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io%

Accr*e, e%efi$ o!i&/$io% '815=1(P!/% /sse$s /$ f/ir )/!*e 1958



7/25/2019 sm ch (19).doc




ABO i% excess of p!/% /sse$s '7541(U%reco&%i@e, p/s$ ser)ice cos$

=5 '=57( 485

U%reco&%i@e, %e$ /c$*/ri/! &/i% '1524( Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '77512 (



7/25/2019 sm ch (19).doc




PROBLEM 19.: 'Co%$i%*e,(

81:

Accrued benefit obligation, 1/1/14 $281,710Interest cost ($281,710 x 7%) 19,720



ABO, 12/31/14 $322,680

Plan assets, 1/1/14 $198,200




Plan assets, 12/31/14 $228,092

Ne$ /c$*/ri/! !oss i% 81: $0e ,iffere%ce e$;ee% $0e /c$*/!re$*r% of 11598 /%, $0e expec$e, re$*r% of 175=: 'or => -1958( 15983 Acc*"*!/$e, *%reco&%i@e, /c$*/ri/! !oss 1598 . 1524 7783


Accr*e, e%efi$ o!i&/$io% '78852(P!/% /sse$s /$ f/ir )/!*e 88598

ABO i% excess of p!/% /sse$s '9:54(U%reco&%i@e, p/s$ ser)ice cos$ =5 '=5 - 87( 825U%reco&%i@e, %e$ /c$*/ri/! !oss 778Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '25842 (

814


Interest cost ($322,680 x 7%) 22,588




7/25/2019 sm ch (19).doc





ABO, 12/31/15 $369,768


Plan assets, 1/1/15 $228,092


Contributions 44,000Benefits paid out (28,000 )

Plan assets, 12/31/15 $260,058

Expec$e, /%, /c$*/! re$*r%s /re $0e s/"e i% 8143 A!! of $0e p/s$ser)ice cos$ 0/s ee% /"or$i@e, + Dec3 71143


Accr*e, e%efi$ o!i&/$io% '7295=2(

P!/% /sse$s /$ f/ir )/!*e 8254

ABO i% excess of p!/% /sse$s '195=1(U%reco&%i@e, %e$ /c$*/ri/! !oss '/sse$s( 778Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '1957= (

(b) Pension expense 2013:


Interest on accrued benefit obligation 17,710



$67,160




7/25/2019 sm ch (19).doc






Expected return on plan assets (13,874)


$ 79,096





Amortization of past service cost ($78,000 / 3) 26,000$85,122

PROBLEM 19-4 (Continued)

Note that the statement of financial position net defined benefit

liability account can be proved as follows:

Opening balance + expense – contributions = ending balance

2013: 10,000 + 67,160 – 44,000 = 33,1602014: 33,160 + 79,096 – 44,000 = 68,2562015: 68,256 + 85,122 – 44,000 = 109,378

(c)

817



253,000Interest cost ($253,000 x 7%) 17,710



DBO, 12/31/13 $281,710



7/25/2019 sm ch (19).doc




Plan assets, 1/1/13 $165,000




Plan assets, 12/31/13 $198,200

Acco*%$ repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io%Defi%e, e%efi$ o!i&/$io% '815=1(P!/% /sse$s /$ f/ir )/!*e 1958

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '7541 (

81:


Interest cost ($281,710 x 7%) 19,720



DBO, 12/31/14 $322,680



7/25/2019 sm ch (19).doc





Plan assets, 1/1/14 $198,200




Plan assets, 12/31/14 $228,092

Acco*%$s repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io%Defi%e, e%efi$ o!i&/$io% '78852(

P!/% /sse$s /$ f/ir )/!*e 88598

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '9:54(

814


Interest cost ($322,680 x 7%) 22,588



DBO, 12/31/15 $369,768

Plan assets, 1/1/15 $228,092




Plan assets, 12/31/15 $260,058


Defi%e, e%efi$ o!i&/$io% '7295=2(P!/% /sse$s /$ f/ir )/!*e 8254

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '195=1(



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(d)Pension expense 2013:





$119,160

Remeasurement (gain) loss - OCI 2013:

Expected return on plan assets $ 11,550


$(1,650)




Expected return on plan assets (13,874 )

$53,096




$1,982




Expected return on plan assets (15,966 )

$59,122

2olutions Manual 1-3-*


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$0

2olutions Manual 1-3-1


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(e) The deferral and amortization approach results in a more

stable expense number on the income statement. The deferraland amortization approach may result in increased expense

each year, yet the expense under the immediate recognition

approach is much more volatile. Note that the total expense is

very close over the three year period under both methods.

(f)The immediate recognition approach results in a better

measure of the company’s net obligation on the statement of

financial position in terms of expected future cash flows.

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PROBLEM 19.4

'/( I""e,i/$e Reco&%i$io% Appro/c0 'IFRS(

Pension Expense2013 2014 2015

Current service cost 12,000 13,000 12,500Interest cost (8% x 75,000; 93,000; 109,440) 6,000 7,440 8,755Expected return (8% x 75,000; 93,500; 114,500) (6,000) (7,480) (9,160)Past service cost 75,000 0 0 Total 87,000 12,960 12,095

Remeasurement (Gain) Loss - OCI2013 2014 2015

Expected return (8% x 75,000; 93,500; 114,500) 6,000 7,480 9,160

Actual return (6,500) (10,000) (8,000) Total (500) (2,520) 1,160

Plan AssetsOpening balance 0 93,500 114,500Contributions ($75,000 original + $12,000) 87,000 15,000 12,000Actual return 6,500 10,000 8,000Benefits paid 0 (4,000) (5,000) Ending balance 93,500 114,500 129,500

Defined Benefit ObligationBalance January 1 0 93,000 109,440

Past service cost 75,000Current service cost 12,000 13,000 12,500Interest cost 6,000 7,440 8,755Benefits paid 0 (4,000) (5,000) Ending balance 93,000 109,440 125,695

Funded StatusDefined benefit obligation 93,000 CR 109,440 CR 125,695 CRPlan Assets 93,500 DR 114,500 DR 129,500 DR Funded status and Net Defined BenefitAsset on statement of financial position(net asset)

500 DR 5,060 DR 3,805 DR

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'( Deferr/! /%, A"or$i@/$io% Appro/c0 'ASPE(

Pension Expense2013 2014 2015

Current service cost 12,000 13,000 12,500Interest cost (8% x 75,000; 93,000; 109,440;) 6,000 7,440 8,755Expected return (8% x 75,000;93,500;114,500 ) (6,000) (7,480) (9,160)Amortization of past service costs (75,000/4) 18,750 18,750 18,750 Total 30,750 31,710 30,845

Plan AssetsOpening balance 0 93,500 114,500Contributions ($75,000 + $12,000) 87,000 15,000 12,000

Expected return 6,000 7,480 9,160Asset gain (loss) (Actual return – expectedreturn)

500 2,520 (1,160)

Benefits paid 0 (4,000) (5,000) Ending balance 93,500 114,500 129,500

Accrued Benefit ObligationOpening balance 0 93,000 109,440Past service cost, 1/1/13 75,000Service cost 12,000 13,000 12,500Interest cost 6,000 7,440 8,755Benefits paid 0 (4,000) (5,000)

Ending balance 93,000 109,440 125,695

Funded StatusAccrued benefit obligation 93,000CR 109,440 CR 125,695 CR

Plan Assets 93,500 DR 114,500 DR 129,500 DR Funded status (net asset) 500 DR 5,060 DR 3,805 DRUnrecognized amounts: Past Service Costs 56,250 DR 37,500 DR 18,750 DR Net actuarial gains 500 CR 3,020 CR 1,860 CRNet defined benefit asset on statementof financial position

56,250 DR 39,540 DR 20,695 DR

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'c( Co%c!*sio%s:

T0e pe%sio% expe%se is 0i&0er i% $0e firs$ +e/r *si%& $0ei""e,i/$e reco&%i$io% /ppro/c0 ec/*se $0e f*!! /"o*%$ of $0ep/s$ ser)ice cos$s "*s$ e reco&%i@e, i% $0is +e/r3 Usi%& $0e,eferr/! /%, /"or$i@/$io% /ppro/c05 / por$io% of $0e p/s$ ser)icecos$s /re reco&%i@e, i% 8175 *$ 42584 'or =45 . 15=4(is ,eferre, $o $0e perio, fro" 81:.8123 As / res*!$5 pe%sio%expe%se is 0i&0er *%,er $0e ,eferr/! /%, /"or$i@/$io% /ppro/c0for 81: /%, 8143

T0ere is %o ,iffere%ce i% $0e p!/% /sse$ /!/%ces *%,er $0e $;o"e$0o,s3

T0e /"o*%$ repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io% issi&%ific/%$!+ ,iffere%$ e$;ee% $0e $;o "e$0o,s5 ec/*se $0ep/s$ ser)ice cos$s 0/)e %o$ ee% f*!!+ reco&%i@e, i% expe%se/%, i% $0e s$/$e"e%$ of fi%/%ci/! posi$io% /cco*%$ *%,er $0e,efer /%, /"or$i@e /ppro/c05 %or 0/)e $0e %e$ /c$*/ri/! &/i%s+e$ ee% reco&%i@e,3 U%,er $0e i""e,i/$e reco&%i$io%

/ppro/c05 %e$ /c$*/ri/! &/i%s /re reco&%i@e, i""e,i/$e!+ i% OCI5/%, p/s$ ser)ice cos$s /re expe%se, i""e,i/$e!+5 /%, o$0/ffec$ $0e s$/$e"e%$ of fi%/%ci/! posi$io% /cco*%$3

Reco""e%,e, /ppro/c0 I% or,er $o e re/,+ for $0ei"p!e"e%$/$io% of IFRS ;0e% $0e co"p/%+ &oes p*!ic5 i$ ;o*!,e es$ $o i"p!e"e%$ $0e i""e,i/$e reco&%i$io% /ppro/c0*%,er ASPE3 T0e ,iffere%ce e$;ee% i$ /%, $0e IFRS )ersio% of $0e s/"e "e$0o, is $0/$ *%,er $0e ASPE )ersio%5 %e$ /c$*/ri/!

&/i%s or !osses /re reco&%i@e, i""e,i/$e!+ i% %e$ i%co"e'i%s$e/, of i% OCI5 /s *%,er $0e IFRS )ersio%(3 I% /,,i$io%5 $0eASPE i""e,i/$e reco&%i$io% /ppro/c0 c*rre%$!+ c/!!s for $0ef*%,i%& /sis ABO $o e *se, r/$0er $0/% $0e /cco*%$i%&"e/s*re of $0e DBO3

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PROBLEM 19.2

'/( Pe%sio% expe%se for 817 co"prises $0e fo!!o;i%&


I%$eres$ o% /ccr*e, e%efi$ o!i&/$io%'1> - 15:75( 1:75

Expec$e, re$*r% o% p!/% /sse$s'1> - 15:5( '1:5(

A"or$i@/$io% of *%reco&%i@e, &/i% or !oss i% 817

A"or$i@/$io% of *%reco&%i@e, p/s$ ser)ice cos$ :458Pe%sio% expe%se 8958

A"or$i@/$io% 795 K 34 +e/rs :458

'( 817 I%cre/seDecre/se i% U%reco&%i@e, Ac$*/ri/!G/i%sLosses

'1( 187117 /c$*/ri/!!+ c/!c*!/$e, ABO 158458Less Accr*e, e%efi$ o!i&/$io%

per "e"o recor,1117 ABO 15:75A,, i%$eres$ '1> - 15:75( 1:75

A,, ser)ice cos$ '&i)e%( 81758

Less e%efi$ p/+"e%$s 15=258

Li/i!i$+ !oss 795

'8( Expec$e, re$*r% o% p!/% /sse$s /$ 1117 1:5'1> - 15:5(

Less Ac$*/! re$*r% o% p!/% /sse$s 52

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Asse$ !oss 875:

Ne$ !oss /$ 187117 285:

P!/% Asse$s 8171117 P!/% Asse$s 15:5A,, /c$*/! re$*r% 52

A,, f*%,i%& '81758 1252( 7195

Less e%efi$ p/+"e%$s

P!/% /sse$s5 Dec3 7117 15::5:PROBLEM 19.2 'Co%$i%*e,(

No /"or$i@/$io% occ*rs i% 817 ec/*se %o /!/%ce exis$e,i% $0e U%reco&%i@e, Ne$ G/i% or Loss /cco*%$ /$ $0e e&i%%i%&of 8173

T0e 285: %e$ !oss i% $0e U%reco&%i@e, Ne$ G/i% or Loss/cco*%$ eco"es $0e e&i%%i%& /!/%ce i% 81:3 T0e corri,or /$111: is 1> of $0e &re/$er of 158458 'ABO( or 15::5:'"/r?e$.re!/$e, /sse$ )/!*e(3 Si%ce $0e /"o*%$ of !oss of 285:is !ess $0/% $0e corri,or /"o*%$ of 185485 $0ere ,oes %o$

0/)e $o e /%+ /"or$i@/$io% i% 81:3

'c( o*r%/! E%$ries817Pe%sio% Expe%se333333333333333333333333333333333333333333333 8958



',( Reco%ci!i/$io% of Pe%sio%.Re!/$e, A"o*%$s

Dr 'Cr(

Accr*e, e%efi$ o!i&/$io% '158458(



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F/ir )/!*e of p!/% /sse$s 15::5:

Accr*e, e%efi$ o!i&/$io% i% excess of p!/%

/sse$s 'f*%,e, s$/$*s(

'7:5(U%reco&%i@e, %e$ '&/i%( or !oss

' 285:

U%reco&%i@e, p/s$ ser)ice cos$'795 :458(

7::511

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ 815=1

Proof Ope%i%& /!/%ce of s$/$e"e%$ of fi%/%ci/! posi$io%/cco*%$ of expe%se /"o*%$ cre,i$e, $o /cco*%$ of 8958

co%$ri*$io%s c0/r&e, $o $0e /cco*%$ of 7195 e%,i%&/!/%ce of 815=1 ,ei$3



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'e( T0e !i/i!i$+ !oss $0/$ re!/$es $o $0e ,ispos/! of $0e *si%ess

se&"e%$ ;o*!, e s0o;% i% $0e Disco%$i%*e, Oper/$io%ssec$io% of $0e i%co"e s$/$e"e%$ o% / %e$ of $/x /sis3 T0e!oss ;o*!, %o$ e /"or$i@e, *si%& $0e corri,or /ppro/c03T0e cre,i$ si,e of $0e e%$r+ ;o*!, i%cre/se $0e %e$ ,efi%e,e%efi$ !i/i!i$+'/sse$(3

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PROBLEM 19.=

'/( C/!c*!/$io% of pe%sio% expe%se817 81:

C*rre%$ ser)ice cos$I%$eres$ cos$

'25 - 39( /%, '=5 - 39(

Expec$e, re$*r% o% p!/% /sse$sA"or$i@/$io% of *%reco&%i@e,p/s$ ser)ice cos$Pe%sio% expe%se

' 25('

4:5( '8:5(

' 15(

'15(

' 95('

275(' '75(

' 185(

'1745(

No$e $0ere is %o /"or$i@/$io% of $0e *%reco&%i@e, %e$ /c$*/ri/!!oss /$ /%*/r+ 15 817 ec/*se $0e 45 !oss is ;i$0i% $0e1> corri,or of 1> of 25 'ABO( 'see p/r$ ',((J %or of $0e/%*/r+ 15 81: /"o*%$ of 45 ec/*se i$ is ;i$0i% $0e 1>corri,or of 1> of =5 'see p/r$ ',((3

'( o*r%/! E%$ries817Pe%sio% Expe%se3333333333333333333333333333333333333333333333 15

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333 15Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$33333333333333333 115

C/s03333333333333333333333333333333333333333333333333333333333 115

o*r%/! E%$ries81:



C/s03333333333333333333333333333333333333333333333333333333333 185

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PROBLEM 19.= 'Co%$i%*e,(

'c( No$e - T0e co"p/%+ spo%sors / ,efi%e, e%efi$ pe%sio%

p!/% co)eri%& $0e fo!!o;i%& &ro*p of e"p!o+ees /%,pro)i,i%& $0e fo!!o;i%& e%efi$s3

For $0e +e/r e%,e, Dece"er 715 81:5 $0e %e$ expe%se for $0e co"p/%+6s pe%sio% p!/% is 17453 T0e prese%$ )/!*eof $0e /ccr*e, e%efi$ o!i&/$io% /$ Dece"er 715 81:5 is=5 '1( /%, $0e "/r?e$ re!/$e, )/!*e of $0e f*%, /sse$s is:245 '1( /se, o% $0e f/ir "/r?e$ )/!*e of $0e /sse$s o%$0/$ ,/$e3 T0is res*!$s i% /% *%,erf*%,e, o!i&/$io% of 78753 T0e co"p/%+ 0/s *%reco&%i@e, p/s$ ser)ice

cos$s of 885 /%, /% *%reco&%i@e, %e$ /c$*/ri/! !oss of 453 E"p!o+er co%$ri*$io%s ,*ri%& 81: /"o*%$e, $o185 /%, e%efi$s of 245 '1( ;ere p/i, o*$3 A$Dece"er 715 81:5 $0e %e$ ,efi%e, e%efi$ !i/i!i$+ is:45 '1(3

Reco%ci!i/$io% of Pe%sio%.Re!/$e, A"o*%$sAccr*e, e%efi$ o!i&/$io% '=5(F/ir )/!*e of p!/% /sse$s :245

Accr*e, e%efi$ o!i&/$io% i% excess of p!/%/sse$s 'f*%,e, s$/$*s( '7875

(U%reco&%i@e, %e$ '&/i%( or !oss

' 45

U%reco&%i@e, p/s$ ser)ice cos$ 885

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ ' :45(

O$0er i%for"/$io% $o e ,isc!ose, /ss*"p$io%s $0/$*%,er!ie $0e p!/% s*c0 /s $0e ,isco*%$ r/$e5 $0e r/$e of i%cre/se i% co"pe%s/$io% !e)e!s5 /%, $0e expec$e, !o%&.$er" r/$e of re$*r% o% p!/% /sse$s5 /s ;e!! /s si&%ific/%$

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/cco*%$i%& po!icies &o)er%i%& $0e pe%sio% p!/%3

'1( C/!c*!/$io%s /re s0o;% o% $0e fo!!o;i%& p/&e *si%& /

pe%sio% ;or?s0ee$3 I$ is /ss*"e, $0/$ $0ere ;ere %o/c$*/ri/! &/i%s /%, !osses o% $0e /ccr*e, e%efi$ o!i&/$io%i% 81:3 T0ere ;o*!, e %o experie%ce &/i% or !oss o% p!/%/sse$s si%ce expec$e, re$*r% is e<*/! $o /c$*/! re$*r%3

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Edition

PROBLEM 19.= 'Co%$i%*e,( M/%o% Corpor/$io%Pe%sio% #or? S0ee$817 /%, 81:

',( Ge%er/! o*r%/! E%$ries Me"o Recor,

I$e"s


Ne$3 Def3Be%efi$

Li/Asse$

Accr*e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco.&%i@e,

P/s$ Ser)iceCos$

U%reco.&%i@e,

Ne$ G/i%or Loss 8

B/!/%ce5 /%3 15 817'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( A"or$i@/$io% of PSC'e( F*%,i%&'f( Be%efi$sExpe%se e%$r+5 187117Co%$ri*$io%5 817B/!/%ce5 Dec3 715 817

'&( Ser)ice cos$'0( I%$eres$ cos$'i( Expec$e, re$*r%'( A"or$i@/$io% of PSC'?( F*%,i%&'!( Be%efi$s

Expe%se e%$r+5 18711:Co%$ri*$io%5 81:B/!/%ce5 Dec3 715 814

25 Dr34:5 Dr38:5 Cr315 Dr3

5 Dr315 Dr3

95 Dr3275 Dr375 Cr3185 Dr3

5 Dr31745 Dr3

115 Cr35 Dr3

115 Cr3

185 Cr35 Dr3

185 Cr3

:5 Cr3

15 Cr3115 Dr375 Cr3

1745 Cr3185 Dr3 :45 Cr3

25 Cr3 25 Cr3 4:5 Cr3

1:5 Dr355 Cr3

=5 Cr3

95 Cr3 275 Cr3

245 Dr3

55 Cr3=5 Cr3

825 Dr3 1

8:5 Dr3

115 Dr3 1:5 Cr3

55 Cr3

75 Dr3

75 Dr3

185 Dr3 245 Cr3

55 Cr3:245 Dr3

845 Dr3

15 Cr3

55

8:5 Dr3

185 Cr3

5 Dr3885 Dr3

45 Dr3

55

45 Dr3

545 Dr3

1 Be&i%%i%& /!/%ce of p!/% /sse$s c/!c*!/$e, fro" e%,i%& /!/%ce pro)i,e, /%, $r/%s/c$io%s ,*ri%& $0e +e/r38 T0e *%reco&%i@e, !oss

,oes %o$ %ee, $o e /"or$i@e, o)er 81: /%, 814 si%ce i$ ,oes %o$ excee, $0e &re/$er of 1> of $0e e&i%%i%&/!/%ces of ABO /%, p!/% /sse$s3

'f( 1:5 c/!c*!/$e, + *si%& e&i%%i%& /%, e%,i%& /!/%ces of ABO /s pro)i,e,'!( 245 c/!c*!/$e, + *si%& e&i%%i%& /%, e%,i%& /!/%ces of P!/% Asse$s /s pro)i,e,3

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PROBLEM 19.

(a) Pension expense under the immediate recognition approachunder ASPE:


Interest on benefit obligation ($750,000 x 6%) 45,000

Actuarial loss related to benefit obligation 15,500

Actual loss on plan assets 9,500

Past service cost expense 240,000

$417,500Pension expense under the defer and amortize approach under

ASPE:


Interest on benefit obligation ($750,000 x 6%) 45,000

Expected return on plan assets ($320,000 x 7%) (22,400) *

Amortization of Past service cost ($240,000 / 21) 11,429

$ 141,529Ac$*/! re$*r% of '954( expec$e, re$*r% of 885: /c$*/ri/!!oss o% /sse$s i% 817 of 71593

'( Reco%ci!i/$io% of Pe%sio% Expe%se

I""e,i/$e Reco&%i$io% Appro/c0 expe%se

:1=54

Differe%ce i% p/s$ ser)ice cos$ Less P/s$ ser)ice cos$ '8:5(A,, A"or$i@/$io% of p/s$ ser)ice cos$ 11,429

'8854=1(

Differe%ce i% re$*r% o% p!/% /sse$s Less Ac$*/! !oss o% p!/% /sse$s '954( Less Expec$e, re$*r% o% p!/% /sse$s (22,400) '7159(

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Differe%ce i% /c$*/ri/! !oss re!/$e, $o e%efi$ o!i&/$io% Less Ac$*/ri/! !oss o% /ccr*e, o!i&/$io%

'1454(

Deferr/! /%, A"or$i@/$io% Appro/c0 Expe%se1:15489

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PROBLEM 19. 'Co%$i%*e,(

No$e for I%s$r*c$ors I% re/!i$+5 $0ere ;i!! e o$0er ,iffere%ces*s*/!!+ ec/*se $0e ABO for f*%,i%& p*rposes is *s*/!!+ !o;er$0/% $0e ABO for /cco*%$i%& p*rposes /%, $0is ;i!! /ffec$ $0ei%$eres$ cos$3

'c( Co%$i%*i$+ Sc0e,*!e of Accr*e, Be%efi$ O!i&/$io% *%,er $0ei""e,i/$e reco&%i$io% /ppro/c0


Recognition of Past service costs $240,000

Interest cost ($510,000 + $240,000) x 6% 45,000




ABO, 12/31/13 $870,000

Plan assets, 1/1/13 $320,000


Contributions ($107,500 + $240,000) 347,500Benefits paid out (48,000 )

Plan assets, 12/31/13 $610,000

A"o*%$ repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io%

Accr*e, e%efi$ o!i&/$io% '=5(P!/% /sse$s /$ f/ir )/!*e 610,000

ABO i% excess of p!/% /sse$s '825 (Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '825(

A% e/sier "e$0o, is /s fo!!o;s /%3 117 /!/%ce of s$/$e"e%$of fi%/%ci/! posi$io% /cco*%$

195 cr3

Fro" expe%se e%$r+ :1=54 cr3



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Fro" co%$ri*$io%s e%$r+ 7:=54 ,r3

B/!/%ce5 Dec3 7117 825 cr3


'c( Co%$i%*i$+ Sc0e,*!e of Accr*e, Be%efi$ O!i&/$io% *%,er $0e,eferr/! /%, /"or$i@/$io% /ppro/c0


Recognition of past service costs $240,000Interest cost ($510,000 + $240,000) x 6% 45,000




ABO, 12/31/13 $870,000

Plan assets, 1/1/13 $320,000


Contributions ($107,500 + $11,429) 118,929


Plan assets, 12/31/13 $381,429

A"o*%$ repor$e, o% $0e s$/$e"e%$ of fi%/%ci/! posi$io%

Accr*e, e%efi$ o!i&/$io% '=5(P!/% /sse$s /$ f/ir )/!*e 715:89

ABO i% excess of p!/% /sse$s ':54=1(U%reco&%i@e, p/s$ ser)ice cos$s '8:5 115:89( 8854=1U%reco&%i@e, /c$*/ri/! !oss '1454 7159( :=5:Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$ '81852(



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A% e/sier "e$0o, is /s fo!!o;s /%3 117 /!/%ce of s$/$e"e%$of fi%/%ci/! posi$io% /cco*%$

195 cr3

Fro" expe%se e%$r+ 1:15489 cr3

Fro" co%$ri*$io%s e%$r+ 115989 ,r3

B/!/%ce5 Dec3 7117 81852 cr3

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',( T0e i""e,i/$e reco&%i$io% /ppro/c0 res*!$s i% / c/s0

o*$f!o; of 7:=54 /s o$0 $0e c*rre%$ +e/r6s ser)ice cos$'1=54( /%, $0e e%$ire p/s$ ser)ice cos$ '8:5( /ref*%,e, i% $0e c*rre%$ +e/r3 T0e e%$ire 8:5 of p/s$ser)ice cos$ is f*%,e, i% $0e c*rre%$ +e/r ec/*se i$ ;/sexpe%se, i% $0e c*rre%$ +e/r i% /ccor,/%ce ;i$0 $0e /,)icefro" $0e /c$*/r+3

T0e ,eferr/! /%, /"or$i@/$io% /ppro/c0 res*!$s i% / c/s0o*$f!o; of 115989 fro" $0e c*rre%$ +e/r ser)ice cos$'1=54( /%, $0e /"or$i@/$io% of $0e p/s$ ser)ice cos$

'115:89(3

No$e $o I%s$r*c$orsS$*,e%$s I% re/!i$+5 $0e f*%,i%& ;o*!,%o$ !i?e!+ )/r+ ,epe%,i%& o% $0e /cco*%$i%& po!ic+ c0ose%3Of$e%5 pe%sio% f*%,i%& is ,e$er"i%e, + "i%i"*" f*%,i%&re<*ire"e%$s se$ o*$ i% !e&is!/$io%5 /!$0o*&0 $0e /,)ice of $0e /c$*/r+ /%, $0e c/s0 posi$io% of $0e co"p/%+ c/% ei"por$/%$ )/ri/!es i% $0e ,ecisio%3



7/25/2019 sm ch (19).doc




PROBLEM 19.9

'/( Co%$i%*i$+ Sc0e,*!e of Accr*e, Be%efi$ O!i&/$io%

817 81: 814

Accr*e, e%efi$ o!i&/$io% /$e&i%%i%& of +e/r C*rre%$ ser)ice cos$I%$eres$ cos$Be%efi$s p/i, o*$Ne$ /c$*/ri/! !oss '&/i%(

Accr*e, e%efi$ o!i&/$io% /$e%, of +e/r

445

/

59(

2759

275945

=589

'75

( '8:54 ((

115:89

115:891195

511:c

'745

( :54(

8=5:7

/ No i%$eres$ is c/!c*!/$e, si%ce $0ere ;/s %o o!i&/$io% /$ $0ee&i%%i%& of $0e +e/r3

=589 2759 - 11>c 511: 115:89 - >

'( Co%$i%*i$+ Sc0e,*!e of P!/% Asse$s

817 81: 814

P!/% /sse$s /$ e&i%%i%& of+e/r Expec$e, re$*r% o% /sse$sNe$ /c$*/ri/! &/i% '!oss(Be%efi$s p/i, o*$

Co%$ri*$io%sP!/% /sse$s /$ e%, of +e/r

/

45(45

45:5

15c

'75(

25 45

4525

,

158

'745( 945( 1=5

/ No i%$eres$ is c/!c*!/$e, si%ce $0ere ;ere %o p!/% /sse$s



7/25/2019 sm ch (19).doc




,*ri%& $0e +e/r3 :5 45 - >c 15 45 45 :5 25 75,

25 45 - >



7/25/2019 sm ch (19).doc





'c( Pe%sio% expe%se for 817 co%sis$e, o%!+ of $0e c*rre%$

ser)ice cos$ co"po%e%$ /"o*%$i%& $o 4453 T0ere ;ere%o p/s$ ser)ice cos$s5 %e$ &/i%s or !osses5 pe%sio% /sse$s5or /ccr*e, e%efi$ o!i&/$io% /s of /%*/r+ 15 8173

Pe%sio% expe%se for 81: co"prise, $0e fo!!o;i%&


I%$eres$ o% /ccr*e, e%efi$ o!i&/$io% =589


':5(A"or$i@/$io% of *%reco&%i@e, %e$ &/i% or !oss 841

A"or$i@/$io% of *%reco&%i@e, p/s$ ser)ice cos$

Pe%sio% expe%se 58

Pe%sio% expe%se for 814 co"prise, $0e fo!!o;i%&


I%$eres$ o% /ccr*e, e%efi$ o!i&/$io% 511:


'25

(A"or$i@/$io% of *%reco&%i@e, %e$ &/i% or !oss '2=1(A"or$i@/$io% of *%reco&%i@e, p/s$ ser)ice cos$

Pe%sio% expe%se 11952:7



7/25/2019 sm ch (19).doc




A"or$i@/$io% of %e$ /c$*/ri/! &/i%!oss

Ye/r

Accr*e,Be%efi$O!i&/$io% '/(

P!/%Asse$s '/( Corri,or '(

C*"*!/$i)eU%reco&%i@e, 'G/i%( Loss '/(

Mi%i"*"A"or$i@/$io%of 'G/i%( Loss

81781:814

2759 115:89

45 45

2579 151:7

' ( ' 59(

'12541( ',(

' ( ' ( ' 841( 'c(' (

'2=1( 'e(

'/( As of $0e e&i%%i%& of $0e +e/r3'( T0e corri,or is 1 perce%$ of $0e &re/$er of /ccr*e, e%efi$ o!i&/$io%

or p!/% /sse$s3'c( 59 2579 8541J 85411 841

',( 59 841 8454 '12541('e( 12541 151:7 25=J 25=1 2=1



7/25/2019 sm ch (19).doc



Edition

PROBLEM 19.9 'Co%$i%*e,( D*e! Too$0p/s$e Corpor/$io%',( Pe%sio% #or? S0ee$8175 81: /%, 814


I$e"s


Ne$ Defi%e,Be%efi$

Li/Asse$

Accr*e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco.&%i@e,

Ne$ G/i%or Loss

B/!/%ce5 /%3 15 817'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( F*%,i%&'e( Be%efi$s'f( Ac$*/ri/! !osso*r%/! e%$ries5 187117B/!/%ce5 Dec3 715 817

'&( Ser)ice cos$'0( I%$eres$ cos$'i( Expec$e, re$*r%'( A"or$i@/$io% of !oss'?( F*%,i%&'!( Be%efi$s'"( Ac$*/ri/! &/i%

o*r%/! e%$ries5 18711:B/!/%ce5 Dec3 715 81:

'%( Ser)ice cos$'o( I%$eres$ cos$'p( Expec$e, re$*r%'<( A"or$i@/$io% of &/i%'r( F*%,i%&'s( Be%efi$s'$( Ac$*/ri/! !oss&/i%o*r%/! e%$ries5 187114B/!/%ce5 Dec3 715 814

445 Dr3

5 Dr3445 Dr3

45 Dr3 =589 Dr3 :5 Cr3 841 Dr3

5 Dr3

58 Dr3

1195 Dr3 511: Dr3 25 Cr3 2=1 Cr3

5 Dr3 11952:7 Dr3

45 Cr3

Dr345 Cr3

25 Cr3

5 Dr3

25 Cr3

945 Cr3

5 Dr3945 Cr3

Cr3

45 Cr3 45 Cr3

858 Cr37758 Cr3

8:52:7 Cr34=5987 Cr3

445 Cr3

59 Cr355 Cr3 2759 Cr3

45 Cr3 =589 Cr3

75 Dr3 8:54 Dr3

55 Cr3115:89 Cr3

1195 Cr3 511: Cr3

745 Dr3 :54 Cr355 Cr38=5:7 Cr3

45 Dr3

55 Cr3 45 Dr3

:5 Dr3

25 Dr3 75 Cr3 15 Dr3

5 Cr3 45 Dr3

25 Dr3

945 Dr3 745 Cr3 158 Dr355 Cr31=5 Dr3

59 Dr35 C59 Dr3

841 Cr3

8454 Cr3

5 Dr312541 Cr3

2=1 Dr3

2257 Dr3 5 Dr34518 Dr3



7/25/2019 sm ch (19).doc





'e( Pe%sio% Reco%ci!i/$io% Sc0e,*!e814

Accr*e, e%efi$ o!i&/$io% '8=5:7(P!/% /sse$s /$ f/ir )/!*e 1=5

Accr*e, e%efi$ o!i&/$io% i% excess of p!/%/sse$s 'f*%,e, s$/$*s(

'15:7(U%reco&%i@e, %e$ '&/i%( or !oss 4518

Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$

'4=5987 (

T0e pe%sio% is *%,erf*%,e, + 15:7 /$ Dece"er 7158143 T0e /"o*%$ s0o;% /s / %e$ ,efi%e, e%efi$ !i/i!i$+ o%D*e!6s s$/$e"e%$ of fi%/%ci/! posi$io% /$ Dece"er 715 814is 4=59873 T0e ,iffere%ce is ,*e $o $0e *%/"or$i@e, por$io%of $0e *%reco&%i@e, !oss of 4518 ;0ic0 ;i!! e /"or$i@e,o)er $0e /)er/&e re"/i%i%& ser)ice !ife of $0e e"p!o+ees3

'f( T0e Co"p/%+ c/% e!ec$ $o reco&%i@e 1> of $0e /c$*/ri/!&/i%s /%, !osses /s $0e+ /re i%c*rre, or *se /%+ o$0er s+s$e"/$ic "e$0o, of /"or$i@/$io% /s !o%& /s $0e /"o*%$/"or$i@e, excee,s $0e "i%i"*" /"o*%$ es$/!is0e, + $0ecorri,or "e$0o,3 If $0is /!$er%/$i)e is se!ec$e,5 /"o*%$s;i$0i% $0e corri,or c/% e reco&%i@e, /s expe%se i% $0e+e/r3



7/25/2019 sm ch (19).doc




PROBLEM 19.1

'/(P/s$ ser)ice cos$ ;/s i%c*rre, o% Dece"er 75 8185/ffec$i%& $0e DBO /$ Dece"er 715 8183 Pe%sio% expe%sefor 818 is /ffec$e, o%!+ *%,er $0e i""e,i/$e reco&%i$io%/ppro/c05 /%, $0is ;o*!, e for $0e f*!! 453

P/s$ Ser)ice Cos$ *%,er $0e i""e,i/$e reco&%i$io% /ppro/c0*%,er ASPE

81781:

814

Reco&%i@e, i% f*!! i% 818

P/s$ Ser)ice Cos$ *%,er $0e ,eferr/! /%, /"or$i@/$io% /ppro/c0*%,er ASPE

81781:814

75:28

75:28 75:28

'45 K 17 +e/rs('45 K 17 +e/rs('45 K 17 +e/rs(

P/s$ Ser)ice Cos$ *%,er $0e i""e,i/$e reco&%i$io% /ppro/c0*%,er IFRS

81781:814

Reco&%i@e, i% f*!! i% 818



7/25/2019 sm ch (19).doc





'( 187117 F/ir )/!*e of p!/% /sse$s 9=45

Less Expec$e, f/ir )/!*e of /sse$s1117 f/ir )/!*e =45A,, expec$e, re$*r%

'> - =45(

25A,, co%$ri*$io%s 1:75=4

Less e%efi$s

9475=4

Asse$ &/i%

'81584(

187117 Ne; /c$*/ri/!!+c/!c*!/$e, ABO

151=54

Less 1117 ABO 15845A,, i%$eres$

'1> - 15845(

1845A,, c*rre%$ ser)ice cos$ 45

Less e%efi$s

15:845

Li/i!i$+ &/i% '87=54(

U%reco&%i@e, %e$ /c$*/ri/! &/i% 187117 '845=4(

A"or$i@/$io% i% 817

No%e ec/*se $0ere ;/s %oe&i%%i%& /!/%ce3

A"or$i@/$io% i% 81: 'corri,or /ppro/c0( 5=4

Ye/r

Accr*e,Be%efi$

O!i&/$io%

M of P!/%

Asse$s Corri,or

U%reco.&%i@e,

Ne$ 'G/i%(A"or$i.@/$io%

81781:

15845 151=54

=45 9=45

1845 115=4

( '845=4(

5=4



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845=4 115=4 1:5J 1:5 K 12 5=4



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'c( Pe%sio% expe%se for 817 *%,er $0e i""e,i/$e reco&%i$io%/ppro/c0 *%,er ASPE is co"prise, of $0e fo!!o;i%&



Expec$e, re$*r% o% p!/% /sse$s '25(Ac$*/ri/! &/i% o% ABO '87=54(Ac$*/ri/! &/i% o% p!/% /sse$s '81584(

Pe%sio% expe%se '1:75=4(

'15845 - 1> 1845(

Pe%sio% expe%se for 817 *%,er $0e ,eferr/! /%, /"or$i@/$io%/ppro/c0 *%,er ASPE is co"prise, of $0e fo!!o;i%&



Expec$e, re$*r% o% p!/% /sse$s '25(A"or$i@/$io% of *%reco&%i@e, p/s$ ser)ice cos$ 75:28

Pe%sio% expe%se 1475:28

'15845 - 1> 1845(=45 - > 25

Pe%sio% expe%se for 817 *%,er $0e i""e,i/$e reco&%i$io%/ppro/c0 *%,er IFRS is co"prise, of $0e fo!!o;i%&

2olutions Manual 1-31$*


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I%$eres$ o% ,efi%e, e%efi$ o!i&/$io% 1845

Expec$e, re$*r% o% p!/% /sse$s5 *si%& ,isco*%$ r/$e '=45 (

Pe%sio% expe%se 15

15845 - 1> 1845=45 - 1> =45

2olutions Manual 1-31$1


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',( Reco%ci!i/$io% Sc0e,*!e 817 for ASPE ',efer /%, /"or$i@e

/ppro/c0(

Accr*e, e%efi$ o!i&/$io% '151=54(F/ir )/!*e of p!/% /sse$s 9=45

ABO i% excess of p!/% /sse$s 'f*%,e, s$/$*s( '81854 (U%reco&%i@e, p/s$ ser)ice cos$

'45 75:28(

':21547U%reco&%i@e, %e$ '&/i%( or !oss '845=4(Ne$ ,efi%e, e%efi$ '!i/i!i$+(/sse$

'95=18 (

Proof /%*/r+ 15 817 /!/%ce of $0e Ne$ Defi%e, Be%efi$Li/i!i$+Asse$ /cco*%$ ;/s e<*/! $o $0e f*%,e, s$/$*s of45 '15845 . =45( $0e *%reco&%i@e, p/s$ ser)icecos$ of 45 3D*ri%& 8175 $0e Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$

Ope%i%& /!/%ce Cre,i$ ;0e% expe%se reco&%i@e, 1475:28 cr

Dei$ ;0e% co%$ri*$io%s "/,e 1:75=4 ,r B/!/%ce5 Dece"er 715 817 95=18 cr

(e)If E?e,/0!6s p!/% ;/s co%$ri*$or+5 $0e e"p!o+ees ;o*!,e/r p/r$ of $0e cos$ $o f*%, $0e pe%sio% p!/%5 re,*ci%& $0e%e$ pe%sio% expe%se + $0e /"o*%$ of $0e e"p!o+eeco%$ri*$io%3 I% / %o%.co%$ri*$or+ p!/%5 $0e e"p!o+er e/rs$0e e%$ire cos$ of $0e pe%sio% p!/%3 T0e p!/% s$/$*s /sco%$ri*$or+ )ers*s %o%.co%$ri*$or+ ;o*!, %o$ c0/%&e /%+por$io% of p/r$s '/( $o ',( of $0e pre)io*s /%s;ersJ $0ere,*c$io% of pe%sio% expe%se fro" e"p!o+ee co%$ri*$io%s;o*!, e recor,e, sep/r/$e!+J $0e fi%/%ci/! s$/$e"e%$s;o*!, s0o; $0e %e$ pe%sio% expe%se3 T0e f*%,i%& o*r%/!e%$r+ ;o*!, s$i!! s0o; / cre,i$ $o c/s03 I% / co%$ri*$or+p!/%5 $0e c/s0 ;o*!, e pro)i,e, fro" $0e e"p!o+er6s o;%/cco*%$ /%, / por$io% ;o*!, co"e fro" /"o*%$s ;i$00e!,

2olutions Manual 1-31$$


7/25/2019 sm ch (19).doc




fro" e"p!o+ee p/+3 T0e s$/$e"e%$ of c/s0 f!o;s ;o*!,s0o; / s"/!!er %e$ c/s0 o*$f!o; for / co%$ri*$or+ p!/%si%ce $0e e"p!o+ees ;o*!, e pro)i,i%& / por$io% of $0e

c/s0 f*%,i%& $o $0e p!/%3

PROBLEM 19.11

'/( T0e pe%sio% ;or? s0ee$ for Be/$o% /%, G*%$er I%c3 for $0e+e/r e%,e, Dece"er 715 81: is prese%$e, o% $0e fo!!o;i%&p/&e3 I$ is /ss*"e, $0/$ $0e co"p/%+ is fo!!o;i%& IFRSec/*se i$ is / s*si,i/r+ of / "*!$i%/$io%/! co"p/%+ $0/$ is!i?e!+ / p*!ic co"p/%+3

'( T0e o*r%/! e%$ries re<*ire, $o ref!ec$ $0e /cco*%$i%& for Be/$o% /%, G*%$er I%c36s pe%sio% p!/% for $0e +e/r e%,e,Dece"er 715 81:5 /re /s fo!!o;s

Pe%sio% Expe%se3333333333333333333333333333333333333333333333 4:5284Re"e/s*re"e%$ G/i% 'OCI(333333333333333333333 :5284Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333

45

Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$33333333333333333 4=45C/s033333333333333333333333333333333333333333333333333333333333

4=4533333333333333333333333333333333333333333333333333333333333333

C/s0 3333333333333333333333333333333333333333333333333333333333333333 1584Pe%sio% Expe%se33333333333333333333333333333333333333 1584

I% effec$5 ;0e% $0e p/+ro!! $r/%s/c$io% $oo? p!/ce5$0e e"p!o+ees co%$ri*$e, 1584 /s $0eir s0/re of $0e

pe%sio% cos$3

'c( Pe%sio% Reco%ci!i/$io% Sc0e,*!e81:

Defi%e, e%efi$ o!i&/$io% '1858:75=4(P!/% /sse$s /$ f/ir )/!*e 152584

2olutions Manual 1-31$%


7/25/2019 sm ch (19).doc




Defi%e, e%efi$ o!i&/$io% i% excess of p!/%/sse$s 'f*%,e, s$/$*s(5 /%, Ne$ ,efi%e,

Be%efi$ '!i/i!i$+(/sse$ '8587=54 (

2olutions Manual 1-31$&


7/25/2019 sm ch (19).doc





',( If i%$eres$ r/$es i% $0e eco%o"+ /re f/!!i%& $0is ;i!! $r/%s!/$e$o / !o;er ,isco*%$ r/$e ei%& *se, $o c/!c*!/$e $0e DBO3T0is ;i!! i%cre/se $0e DBO /%, $0erefore /!so i%cre/se $0e/"o*%$ + ;0ic0 $0e pe%sio% f*%, is *%,erf*%,e,3

2olutions Manual 1-31$'


7/25/2019 sm ch (19).doc



Edition

PROBLEM 19-11 (Continued)Be/$o% /%, G*%$er I%c3

Pe%sio% #or? S0ee$81:


I$e"s

Re"e/s*re."e%$ 'G/i%(

Loss . OCI

A%%*/!Pe%sio%

Expe%se C/s0

Ne$ Def3 Be%3Li/i!i$+

Asse$

Defi%e,Be%efi$

O!i&/$io%

P!/%

Asse$sA

B/!/%ce5 /%3 15 81:'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( F*%,i%&'e( E"p!o+ee co%$r3'f( Be%efi$s p/i,'&( Ac$3 &/i% o% /sse$s'0( Li/i!i$+ !ossExpe%se e%$r+5 18711:F*%,i%& e%$r+B/!/%ce5 Dec3 715 81:

2=15=4 Cr3271584 Dr3:5284 Cr3

:845 Dr3 425=4 Dr3 :475184 Cr3

1584 Cr3

:4957=4 Dr3

4=45 Cr31584 Dr3

5 Dr3

:975=4 Cr3

8571854 Cr3

:15=4 Cr3 :975=4 Dr38587=54 Cr3

1157=45 Cr3 :845 Cr3 425=4 Cr3

=42584 Dr3

271584 Cr3 Cr3

1858:75=4 Cr3

952854 Dr3

:475184 Dr3 4=45 Dr3

=42584 Cr32=15=4 Dr3

152584 Dr3

'c( 952854 - 4> :475184

2olutions Manual 1-31$)


7/25/2019 sm ch (19).doc




PROBLEM 19.18

'/( T0e pe%sio% ;or? s0ee$ for G!o"s?i Corpor/$io% for $0e+e/r e%,e, M/+ 715 817 is prese%$e, o% $0e fo!!o;i%& p/&e3

'( T0e o*r%/! e%$ries re<*ire, $o ref!ec$ $0e /cco*%$i%& for G!o"s?i Corpor/$io%6s pe%sio% p!/% for $0e +e/r e%,e, M/+715 8175 /re /s fo!!o;s


Ne$ Defi%e, Be%efi$ Li/i!i$+Asse$333333333333333333333 :84C/s0333333333333333333333333333333333333333333333333333333333333333 :84



7/25/2019 sm ch (19).doc



Edition


'/( G!o"s?i Corpor/$io%Pe%sio% #or? S0ee$For $0e Ye/r E%,e, M/+ 715 817


I$e"s


Ne$ Def3Be%3 Li/ Asse$

Accr*e,Be%efi$

O!i&/$io%P!/%

Asse$s

U%reco&%i@e,P/s$

Ser)ice Cos$

*%e 15 817'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( Co%$ri*$io%s'e( Be%efi$s p/i,'f( A"or$i@/$io% of p/s$

ser)ice cos$Expe%se e%$r+Co%$ri*$io% e%$r+B/!/%ce5 M/+ 715 817

75 Dr315::2 Dr315=72 Cr3

84 Dr38592 Dr3

:84 Cr3

Cr3

:84 Cr3

: Cr3

8592 Cr3 :84 Dr385974 Cr3

8:51 Cr3 75 Cr3 15::2 Cr3

4 Dr3

5 Cr385:2 Cr3

815= Dr3

15=72 Dr3 :84 Dr3 4 Cr3

5 Cr3

875721 Dr3

85 Dr3

84 Cr3

5 Dr315=4 Dr3

'/( Per /c$*/r+6s repor$3'( 8:51 - 323'c( 815= - 33'f( A"or$i@/$io% of *%reco&%i@e, p/s$ ser)ice cos$ fro" p!/% /"e%,"e%$ o)er .+e/r /)er/&e perio, $o f*!! e!i&ii!i$+3



7/25/2019 sm ch (19).doc




PROBLEM 19.17

(a)Post-retirement benefit expense – 2014


$ 273,000

Interest on Post-retirement benefit obligation

($3,439,800 X 9%) 309,582

Return on assets, using discount rate ($2,780,000 X 9%) (250,200 )

$332,382

(b)Continuity of Post-Retirement Benefit Obligation – 2014

Defined post-retirement benefit obligation, 1/1/14 $3,439,800


Interest cost ($3,429,800 x 9%) 309,582


Defined post-retirement benefit obligation, 12/31/14$3,850,782


Plan assets, 1/1/14 $2,780,000

Actual return on plan assets 1/1/14 58,500Contributions 234,000


Plan assets, 12/31/14 $2,900,900

2olutions Manual 1-31$-


7/25/2019 sm ch (19).doc





'c( Reco%ci!i/$io% Sc0e,*!e 81:

Pos$.re$ire"e%$ e%efi$ o!i&/$io% 'cre,i$( '7545=8(F/ir )/!*e of p!/% /sse$s ',ei$( 85959

Pos$.re$ire"e%$ e%efi$ o!i&/$io% i% excess ofp!/% /sse$s 'f*%,e, s$/$*s( 'cre,i$( Ne$ Defi%e,Pos$.re$ire"e%$ 'Li/i!i$+(Asse$ 'cre,i$( '9:958

(

Proof

Ne$ Defi%e, Pos$.re$ire"e%$ Li/i!i$+5 /%31 2495cr Expe%se reco&%i@e,778578cr

Re"e/s*re"e%$ '&/i%( !oss OCI1915=cr

Co%$ri*$io% + co"p/%+87:5,r

Acco*%$ /!/%ce Dece"er 715 81:9:958cr

',( T0e /sic co%cep$s /%, "e/s*re"e%$ "e$0o,o!o&+ for pos$.re$ire"e%$ e%efi$s $0/$ /cc*"*!/$e /re $0e s/"e /s for pe%sio% e%efi$s3 T0e reco&%i$io% /%, "e/s*re"e%$ cri$eri/for $0e o!i&/$io% /%, p!/% /sse$s /re $0e s/"e5 /s is $0e/c$*/ri/! )/!*/$io% "e$0o,5 $0e /$$ri*$io% perio,5 /%, $0ec/!c*!/$io% of $0e c*rre%$ cos$ of e%efi$s3

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Edition


T0e fo!!o;i%& ;or?s0ee$ is %o$ re<*ire, *$ is pro)i,e, $o i!!*s$r/$e $0e si"i!/ri$ies ;i$0/cco*%$i%& for pe%sio% e%efi$s3

Ge%er/! o*r%/! E%$ries

I$e"s

Re"e/s*re."e%$ '&/i%(!oss . OCI

Ne$ Perio,ic

Pos$.re$ire"e%$Expe%se C/s0

Ne$ Defi%e,Pos$.re$ire."e%$ Li/3

Defi%e,

Pos$.re$ire."e%$ Be%efi$O!i&/$io%

P!/%Asse$s

B/!/%ce5 /%3 15 81:'/( Ser)ice cos$'( I%$eres$ cos$'c( Expec$e, re$*r%',( Ac$*/ri/! !oss'e( Co%$ri*$io%s'f( Be%efi$s p/i,Expe%se e%$r+5 1871Co%$ri*$io%B/!/%ce5 Dec3 711:

1915= Dr3

1915= Dr3

8=75 Dr3

79548 Dr3

8458 Cr3

778578 Dr3

87:5 Cr3

87:5 Cr3

2495 Cr3

48:58 Cr3

87:5 Dr3

9:958 Cr3

75:795 Cr3

8=75 Cr3

79548 Cr3

1=152 Dr3

5 Dr3

7545=8 Cr3

85=5 Dr3

8458 Dr3

1915= Cr3

87:5 Dr3

1=152 Cr3

5 Dr3

85959 Dr3

75:795 - 39 79548

85=5 - 39 8458454 8458 1915=

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'/(A"o*%$s

*si%&ori&i%/!

/ss*"p$io%s

A"o*%$s*si%&

re)ise,/ss*"p$io%s

Pe%sio% e%efi$s e/r%e, $oDece"er 715 814 95

1

5= 8

P of /%%*i$+ /$ Dec3 715 8:= =45:44

7

29511

:

DBO /$ Dec3 715 814 115298 4

=5989 2

1 8> - 145 - 7 +e/rs 958 8> - 1:45 - 7 +e/rs 5=7 95 - P f/c$or '2>5 18 +e/rs( 95 - 377:

'T/!e A. :( =45:44: 5= - P f/c$or '=>5 18 +e/rs( 29511

Si%ce $0e $/!es ,o %o$ i%c!*,e =>5 $0e c/!c*!/$io% ;/s,o%e *si%& / fi%/%ci/! c/!c*!/$or

P Q Yie!,s 29511

I =>

N 18

PMT '5=(

F

T+pe 4 =45:4: - P f/c$or '2>5 78 +e/rs( =45:4: - 314:92

'T/!e A.8( 1152982 29511 - P f/c$or '=>5 78 +e/rs( =5989

P Q Yie!,s =5989

I =>

N 78

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PROBLEM 19.1:

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PMT

F '29511(

T+pe

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PROBLEM 19.1: 'Co%$i%*e,(

T0e c/!c*!/$io%s co*!, /!so e ,o%e *si%& Exce!


T0e DBO /$ Dece"er 715 8145 *si%& $0e re)ise, /ss*"p$io%s;o*!, e =59893 T0is represe%$s /% /c$*/ri/! &/i% of 75=27'115298 =5989( si%ce $0e re)ise, DBO is !o;er $0/% $0e DBOc/!c*!/$e, *%,er $0e ori&i%/! /ss*"p$io%s3

'(2> ,isco*%$

r/$e

> ,isco*%$

r/$ePe%sio% e%efi$s e/r%e, $o

Dece"er 715 814 5=

5=

P of /%%*i$+ /$ Dec3 715 8:= =85979 1

24542: 8

DBO /$ Dec3 715 814 11577 7

4542 :

DBO /$ Dec3 715 814 *si%& => '=5989 ( '=5989 (C0/%&e i% DBO 757=: '857:7

(

Perce%$/&e c0/%&e :7> i%cre/se 7> ,ecre/se

1 5= - P f/c$or '2>5 18 +e/rs( 5= - 377:'T/!e A. :( =85979

8 5= - P f/c$or '>5 18 +e/rs( 5= - =3472'T/!e A.:( 24542:

7 =85979 - P f/c$or '2>5 78 +e/rs( =85979 - 314:92'T/!e A.8( 11577

: 24542: - P f/c$or '>5 78 +e/rs( 24542: - 348'T/!e A.8( 4542

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'c( Ass*"i%& $0e p!/% ;/s 1> f*%,e, pre)io*s!+ 'DBO

F*%, /sse$s(5 $0e ,ecre/se i% DBO ;o*!, "/?e $0e p!/%o)erf*%,e, + 115298 . =5989 75=273

Pe%sio% expe%se for 814 ;o*!, %o$ e /ffec$e, if $0e ASPE,eferr/! /%, /"or$i@/$io% /ppro/c0 is *se, si%ce $0ec0/%&e $oo? p!/ce /$ Dece"er 715 8143 T0e /"or$i@/$io%of $0e /c$*/ri/! &/i% ;o*!, e /se, o% e&i%%i%&.of.+e/r /!/%ces5 /%, si%ce $0e /c$*/ri/! &/i% $oo? p!/ce /$ $0e e%,of $0e +e/r5 $0ere ;o*!, e %o /"or$i@/$io% i% 8143 I% 8125$0e /c$*/ri/! &/i% ;o*!, e /"or$i@e, /se, o% $0e excess

of $0e &/i% o)er 1> of $0e &re/$er of DBO /%, p!/% /sse$s/$ /%*/r+ 15 812 'i3e3 $0e corri,or /ppro/c0(3 T0is excess5if /%+5 ;o*!, e /"or$i@e, o)er $0e e"p!o+ee6s /)er/&ere"/i%i%& ser)ice perio, of 71 +e/rs3 A%+ /"or$i@/$io% of $0e /c$*/ri/! &/i% ;o*!, e i%c!*,e, /s / re,*c$io% of 812pe%sio% expe%se3

If $0e ASPE i""e,i/$e reco&%i$io% /ppro/c0 is *se,5 $0e/c$*/ri/! &/i% of 75=27 ;o*!, re,*ce $0e 814 pe%sio%

expe%se /%, re,*ce $0e DBO '/%, i%cre/se f*%,e, s$/$*s(+ 75=273

If $0e IFRS i""e,i/$e reco&%i$io% /ppro/c0 is *se,5 $0e/c$*/ri/! &/i% of 75=27 ;o*!, e recor,e, /s / cre,i$ $ore"e/s*re"e%$ '&/i%( !oss OCI /%, re,*ce $0e DBO '/%,i%cre/se f*%,e, s$/$*s( + 75=273

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',(

Before cre,i$for prior ser)ice

Af$er cre,i$for prior ser)ice

Pe%sio% e%efi$s e/r%e, $oDece"er 715 812 1:54

1

7159 8

P of pe%sio% e/r%e, /$Dec3 715 8:2 1145129

7

84757=8 :

DBO /$ Dec3 715 812 145189 4

77584 2

DBO5 /$ Dec3 7112 /f$er priorser)ice reco&%i@e, 77584

DBO5 /$ Dec3 7117 eforeser)ice reco&%i@e, ' 145189

(P/s$ ser)ice cos$ i%c*rre, 15142

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1 8> - 1:45 - 4 +e/rs 1:548

8> - 1:45 - 11 +e/rs 7159 11 +e/rs 2 +e/rs p/s$ ser)ice cos$ efore 818 p!*s 4+e/rs fro" 818 $o 8123

7 1:54 - P f/c$or '=>5 18 +e/rs( 1145129

Si%ce $0e $/!es ,o %o$ i%c!*,e =>5 $0e c/!c*!/$io% ;/s,o%e *si%& / fi%/%ci/! c/!c*!/$or

P Q Yie!,s 1145129

I =>

N 18

PMT '1:54(F

T+pe

4 $31,900 X PV factor (7%, 12 years) = $253,372

P Q Yie!,s 84757=8

I =>

N 18

PMT '7159(F

T+pe

5 $115,169 X PV factor (7%, 30 years) = $15,129

P Q Yie!,s 145189

I =>

N 7

PMT F '1145129(

T+pe



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*PROBLEM 19-14 (Continued)

6 $253,372 X PV factor (7%, 30 years) = $33,285

P Q Yie!,s 77584

I =>

N 7

PMT

F '84757=8(

T+pe



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TIME AND PURPOSE OF #RITING ASSIGNMENTS

WA 1-31 =Time %*8&* minutes>

ur"ose−to "ro#ide the student ith an o""ortunity to determine the a""ro"riateaccounting for a sa!!atical !enefit under A2E and I/42 and to list theinformation needed to "re"are ad9usting entries.

WA 1-3$ =Time %*8%' minutes>

ur"oseto "ro#ide the student ith the o""ortunity to discuss some of themore traditional issues related to "ension re"orting. 2"ecifically, the student isasked to define a contri!utory #ersus a non3contri!utory "lan, distinguish!eteen a funded and unfunded "lan, and differentiate !eteen accounting for the em"loyer and the !enefit "lan. In all cases, the treatment under I/42 and

A2E is e0"lored. The student must also discuss the ad#antages anddisad#antages of immediate recognition #ersus the defer3and3amorti7ea""roaches.

WA 1-3% =Time $*3%*8 minutes>

ur"oseto "ro#ide the student ith the o""ortunity to com"are the immediaterecognition a""roach and the defer3and3amorti7e a""roach.

WA 1-3& =Time $*8%* minutes>

ur"oseto "ro#ide students ith an o""ortunity to research actions com"aniesare taking to reduce "ost em"loyment costs.

WA 1-3' =Time 1'8$* minutes>

ur"oseto "ro#ide the student ith an o""ortunity to understand hy theceiling test must !e made and ho it is done.

WA 1-3) =Time 1'8$* minutes>

ur"oseto "ro#ide the student ith an o""ortunity to understand thedifferences !eteen A2E and I/42 and the conce"tual reasons for any

differences.

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SOLUTIONS TO #RITING ASSIGNMENTS

#A 19.1=a> This !enefit relates to a com"ensated a!sence. It is a defined !enefit "lan

hich is ser#ice related =the !enefit is earned !y the em"loyee o#er a fi#e3year "eriod and then #ests in the em"loyee>. Bnder !oth A2E and I/42,the com"any should accrue the cost of the !enefit and the related lia!ilityo#er the fi#e years in hich the em"loyee o!tains full eligi!ility for !enefits.Bnder A2E, the com"any can use the immediate recognition method thatmeasures the accrued !enefit o!ligation using the funding #aluationmethod. All "ast ser#ice costs and actuarial gains and losses areimmediately recogni7ed, as ell as the actual return on any "lan assets.

As an alternati#e, A2E also currently allos the deferral and amorti7ationmethod. Bnder this a""roach, the accrued !enefit o!ligation is estimatedusing the "ro9ected !enefits #aluation method hich is an accountings"ecified a""roach. Bnder this method, any "ast ser#ice costs that arisecan !e deferred and amorti7ed o#er the remaining "eriod to full eligi!ility for the sa!!atical or a shorter "eriod. Actuarial gains and losses related tothese "lans are also deferred and amorti7ed o#er some reasona!le "eriod=EA42 or some shorter "eriod>.

=!> The accountant must ha#e the folloing information or make assum"tionsa!out themF

− em"loyee turno#er dataF i.e., ro!a!ility that some em"loyees ill notsatisfy the minimum fi#e year ser#ice reDuirement. This informationould not necessarily !e needed !y the assistant controller, !ut ould!e needed !y the actuary. ro9ected salary in the sa!!atical year. Thisinformation ould not necessarily !e needed !y the assistant controller,!ut ould !e needed !y the actuary.

− a""ro"riate discount rate to use in discounting !enefits to their "resent#alue =market rates>. Bnder A2E, this discount rate can either !e thecurrent yield on high Duality cor"orate !onds, or the settlement date rate.

I/42 reDuires that the current yield on high Duality cor"orate !onds !eused.

− Galuation of the accrued !enefit o!ligation at the re"ort date =or ithin %months under A2E if a""lying the defer3and3amorti7e a""roach>,e0"ected earnings rates on "lan assets, if any, reDuired only for thedefer3and3amorti7e method under A2E and the immediate recognitiona""roach under I/42.

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#A 19.1 'Co%$i%*e,(

− Actual return on any "lan assets su""orting the o!ligation. /air #alue of the "lan assets =or an o"tion under A2E is the market3related #alue>.

=c> Yes, the anser to "art =a> could change. The accounting methoddescri!ed in =a> is !ased on the assum"tion that the em"loyees arerecei#ing com"ensation in the si0th year !ased on "ast ser#ices and that inthe si0th year they are not "ro#iding acti#e ser#ice to the com"any. If thecom"any dictates their acti#ities during the sa!!atical year and theacti#ities !enefit the com"any, this ould !e considered acti#e ser#ice. Thesa!!atical year ould then not !e a com"ensated a!sence, !ut rather asalary for acti#e ser#ice e#en if the ser#ice is in alternati#e acti#ities suchas research and "romotion. The com"any ould then not need to accruethe com"ensated a!sence in the "receding years, and it ould account for the "ayments in the sa!!atical year in the same ay as for regular salary"ayments. This treatment is the same under !oth I/42 and A2E.

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#A 19.8

=a> In a contri!utory "ension "lan, the em"loyees !ear "art of the cost of thestated !enefits hereas in a non3contri!utory "lan, the em"loyer !ears the

entire cost.

=!> The em"loyer is the organi7ation s"onsoring the "ension "lan. Theem"loyer incurs the costs and makes contri!utions to the "ension fund. /or the em"loyer the accounting in#ol#es =1> allocating the cost of the "ension"lan to the "ro"er accounting "eriods, =$> measuring the amount of "ensiono!ligation resulting from the "lan, and =%> disclosing the status and effectsof the "lan in the financial statements.

The "ension fund or "lan is the entity that recei#es the contri!utions fromthe em"loyer, administers the "ension assets, and makes the !enefit"ayments to the "ension reci"ients. /or the "lan, the accounting in#ol#esidentifying recei"ts as contri!utions from the em"loyer s"onsor and asincome from fund in#estments as ell as com"uting the amounts due toindi#idual "ension reci"ients. =H:F accounting for the !enefit costs ando!ligations of the em"loyer is the to"ic of this cha"ter accounting for thefund or "lan is not.>

=c> 4elati#e to the !enefit "lan, the term Jfunded refers to the fact that assetsare accumulated o#er the "eriod the em"loyee "ro#ides ser#ice to theorgani7ation so that monies ill !e a#aila!le to "ay the !enefits hen theyare due. The relationshi" !eteen "ension fund assets and the "resent#alue of e0"ected future "ension !enefit "ayments indicates the funded

status of the "lan thus, the !enefit "lan may !e fully funded, o#er3funded,or under3funded. 4elati#e to the em"loyer, the term Jfunded has a similar meaning. 2ome "lans are "ay3as3you3go and others =i.e. funded "lans>ha#e assets set aside as the em"loyees "ro#ide ser#ices.

4elati#e to the !enefit "lan, the accrued !enefit lia!ility or asset is hat isre"orted on the !alance sheet of the em"loyer. Bnder the immediaterecognition method, this !alance ould generally !e the same as thefunded status of the "lan. Bnder the defer3and3amorti7e a""roach, this!alance is the funded status of the "lan ad9usted for any "ast ser#ice costsor actuarial gains and losses not yet amorti7ed.

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#A 19.8 'Co%$i%*e,(

=d> Terms and their definitions as they a""ly to accounting for "ension "lans

folloF

1. Current ser#ice cost is the actuarial "resent #alue of !enefits attri!uted!y the "ension !enefit formula to em"loyee ser#ice during that "eriod.Bnder the defer and amorti7e a""roach and the immediate recognitiona""roach, the current ser#ice cost is e0"ensed in the year.

ast3ser#ice cost re"resents the retroacti#e !enefits granted in a "lanamendment =or initiation>. 4etroacti#e !enefits are !enefits granted in a"lan amendment =or initiation> that are attri!uted !y the "ension !enefitformula to em"loyee ser#ices rendered in "eriods "rior to theamendment. Bnder the immediate recognition a""roach, these are all

immediately e0"ensed. Bnder the =A2E> defer3and3amorti7e a""roach,these are deferred and amorti7ed o#er an a""ro"riate "eriod of time.More s"ecifically under this a""roach, these costs are amorti7ed o#er the "eriod to full eligi!ility for the em"loyee or some shorter "eriod.

$. 4emeasurement gain<loss refers to the difference !eteen the actualreturn on "lan assets and the e0"ected return. The e0"ected return isused as "art of the "ension e0"ense calculation under I/42 =and under

A2E defer and amorti7e> in order to smooth out ide sings that mayoccur in the actual return. Actuarial e0"erience gain<loss refers tochanges in actuarial assum"tions =for e0am"le, changes in mortalityrate, turno#er rate, disa!ility rate, and salary amounts> that cause a

change in the defined !enefit o!ligation. This ould also in#ol#e achange in assum"tions used !y the actuary in calculating the (:6 =for e0am"le, a change in the interest rate used to discount the "ension cashflos>. I/42 recogni7es actuarial gains and losses, and remeasurementgains and losses, immediately into 6CI. Bnder A2E immediaterecognition, such gains or losses ould !e recogni7ed immediately innet income.

Bnder the =A2E> defer3and8amorti7e a""roach, either the corridor a""roach or some shorter "eriod can !e used to recogni7e these gainsand losses. The corridor a""roach reDuires the e0cess of the e0"eriencegain or loss o#er the corridor amount =1* of the greater of A:6 and"ension assets at the !eginning of the year> !e amorti7ed o#er theremaining ser#ice "eriod of the em"loyee grou".

=e> The !asic conce"ts and measurement methodology for "ost3retirement!enefits that accumulate are the same as for "ension !enefits. Therecognition and measurement criteria for the o!ligation and "lan assets arethe same, as is the actuarial #aluation method, the attri!ution "eriod, and the

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calculation of the current cost of !enefits. Loe#er, under I/42, a distinctionis made !eteen "lans that are more uncertain and reDuire

#A 19.8 'CONTINUED(

more com"le0 assum"tions such as "ost3em"loyment "ension "lans andhealth3care !enefit "lans, and other "lans. These other "lans ouldinclude "aid lea#e, sa!!aticals, long term disa!ility hich increases ithlength of ser#ice, deferred com"ensation and "rofit sharing and !onus"lans. /or these ty"es of "lans, any "ast ser#ice costs or actuarial gainsand losses must !e recognised immediately into income =not 6CI>.

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#A 19.7

The immediate recognition a""roach recogni7es all changes to the fundedstatus of the "lan immediately into income, and the funded status is re"orted

on the statement of financial "osition. The accrued !enefit o!ligation isdetermined using the funded #aluation a""roach "re"ared !y the actuary.

Accordingly, there are no unamorti7ed amounts ith res"ect to "ast ser#icecosts or actuarial gains and losses that ill !e recogni7ed in future "eriods.The ad#antages are that the accounting is sim"lified, since unamorti7ed!alances do not need to !e tracked and estimates of deferral "eriods need not!e determined. /inally, the net lia!ility =or asset> re"orted reflects the actualfunded status of the "lan in most cases. =Where the "lan is in a sur"lus"osition, the amount of the asset re"orted ill !e limited to the amount of e0"ected future funding !enefit the com"any ill recei#e.> The disad#antageof this method is that the "ension e0"ense ill !e more #aria!le year o#er year due to e0"ensing "ast ser#ices costs and actuarial gains and losses henthey arise =immediately>. 6#er time, actuarial gains and losses ould likelyre#erse and ha#e an o#erall immaterial im"act. In addition, these actuarialgains and losses are out of management control, and therefore might gi#e afalse im"ression of the management+s a!ility to manage the firm+s results andrisk.

The defer3and3amorti7e a""roach calculates the accrued !enefit o!ligationusing the "ro9ected !enefit a""roach hich is strictly a method de#elo"ed for accounting "ur"oses. The defer3and3amorti7e a""roach allos for "ast ser#icecosts and actuarial gains and losses to !e deferred and amorti7ed o#er somereasona!le length of time =as defined ithin the accounting standards> hich

results in delaying their recognition. The rationale for delaying the recognitionis that management e0"ects future !enefits to arise from the "ro#ision of these"ast ser#ice ad9ustments to the "lans. ConseDuently, these "ast ser#ice costsshould !e recogni7ed o#er the future "eriods in hich the !enefits aree0"ected to !e reali7ed. Actuarial gains and losses arise due to une0"ectedchanges in the market #alue of "lan assets and changes in actuarialassum"tions im"acting the amount of the !enefit o!ligation. :oth of thesechanges are !eyond the control of management and are likely to re#erse o#er time. :y deferring the recognition of "ast ser#ice costs and actuarial gainsand losses o#er defined "eriods =or in some cases, not recogni7ing at all>, netearnings is less #olatile ith res"ect to these changes. This is seen as anad#antage !y some "re"arers of financial statements.

The disad#antage of the defer3and3amorti7e a""roach is that the amountre"orted on the statement of financial "osition for the accrued !enefit lia!ilityor asset, is not eDual to the funded status of the "lan. In some cases, thisaccount may e#en !e re"orted as an asset, hen in reality the "lan is actuallyin a deficit and is under3funded. To com"ensate for this, the notes mustdescri!e and reconcile the funded status to the re"orted amount and indicate!alances of unamorti7ed amounts for "ast ser#ice costs and actuarial gainsand losses.

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#A 19.:

The folloing is a summary of hat Canadian com"anies ha#e !een doing in

recent years in res"onse to rising "ost3em"loyment health3care costs and therisks that are associated ith defined !enefit "ension "lans.

=a> Elimination of retiree !enefitsF

• The most drastic res"onse.

• 2ignificant em"loyee discontent is likely.

• Bnilaterally reducing or eliminating "ost3retirement !enefits may"rom"t retirees and<or acti#e em"loyees to !ring a legal actionagainst the em"loyer.

•

4eser#ing the right to amend or terminate "ost3retirement !enefitsis e0"ressly needed.

• An em"loyer may consider "ro#iding em"loyees ith a lum"3sum"ayment in e0change for the elimination or reduction of "ost3retirement !enefits.

=!> 2tricter eligi!ility reDuirementsF

• Im"osing more stringent eligi!ility reDuirements ith res"ect to nehires ill ha#e little im"act on an em"loyer+s "resent !ottom line sincene hires generally do not reach retirement age for Duite some time.

=c> Ca""ing of !enefits.=d> 2itching to defined contri!utionF

• Em"loyees ould !e taking on more risk !ut continue to !e"rotected against catastro"hic e0"enses.

• Em"loyees could manage their share of the risk !y ad9usting futurecontri!ution and co#erage le#els to match their "ersonal situation.

• 2ome com"anies im"lement defined contri!ution "lans for neem"loyees, hile retaining a defined !enefit "lan for e0istingem"loyees.



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#A 19.4

I/4IC 1& outlines the calculation for the asset ceiling test and its rationale. 2incethe sur"lus in the "lan assets argua!ly !elongs to the em"loyees and not thecom"any, limitations must !e "ut on the amount of asset that a com"any canre"ort hen the funded status is a sur"lus. Bnder I/4IC 1&, a com"any isalloed to sho as an asset =related to the sur"lus of the "ension "lan>economic !enefits a#aila!le to the entity in the form of refunds or reductions inthe future contri!utions that ould !e made to the "lan. :ut only under thecondition that the entity has an unconditional right to reali7e these !enefits atsome "oint, either during the life of the "lan or hen the "lan is settled.

The ceiling or ma0imum amount is determined !y calculating the "resent #alue of the future cost sa#ings o#er the shorter "eriod of the e0"ected life of the "lan and

the e0"ected life of the entity. And this calculation is !ased on the conditions"re#ailing at the re"ort date.



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#A 19.2

There are many differences !eteen I/42 and A2E ith res"ect tomeasurement and re"orting for "ension and other em"loyee future !enefits.rimarily, A2E has !een ritten to kee" recognition and measurement issuessim"le and therefore reDuiring less cost and time to calculate and re"ort. A2Ehas also !een designed ith the creditor in mind as the "rimary user, rather thanoutside shareholders and creditors. i#en that creditors generally ha#e accessto management the disclosure has also !een sim"lified.

6ther differences are highlighted !eloF

a> A2E has more choices a#aila!le on re"orting "ensions and other future!enefits. An enter"rise may choose to follo the immediate recognition

a""roach hich results in the accrued !enefit lia!ility or asset !eing eDualto the actual funded status of the "lan in most cases =unless the "lan is ina sur"lus "osition and then only the amount of future !enefits accruing tothe enter"rise ould !e re"orted as an asset, hich might !e loer thanthe actual sur"lus>. This is similar to the a""roach used under I/42.Loe#er, under A2E the accrued !enefit o!ligation is determined usingthe funding #aluation !asis and all "ast ser#ices and actuarial gains andlosses are immediately recogni7ed into income. This method is sim"ler and less costly to im"lement and maintain.

!> A2E also allos the defer3and3amorti7e =(@A> a""roach to !efolloed. /or "ast ser#ice costs, A2E (@A reDuires amorti7ation o#er

the time to full eligi!ility or any shorter "eriod. /or actuarial gains andlosses, A2E (@A allos the corridor a""roach to !e used, ithamorti7ation o#er EA42 or some shorter "eriod.

c> /or immediate recognition under I/42, remeasurement gains andlosses =actuarial gains and losses> are recogni7ed directly into 6CI and donot im"act current earnings. As A2E does not ha#e 6CI, this is not ano"tion.

d> There are differences in the discount rates that can !e used for thedetermination of the o!ligation. A2E allos a choice of either the currentyield rate on high Duality cor"orate !onds =as does I/42> or the current

settlement rate =hich is not alloed under I/42>. These o"tions againmake it easier to determine the information for the "ri#ate enter"rise.

e> /or the #alue of the "lan assets at the re"ort date, I/42 reDuires thatthe fair #alue !e used. Bnder A2E, there is a choice to use either the fair #alue of the "lan assets or a market3related #alue hich is a calculatedamount that recogni7es changes in the #alue of the assets o#er no morethan a fi#e year "eriod.

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#A 19.2 'CONTINUED(

f> /or other ty"es of em"loyee future !enefits hich are not com"le0, A2E ould allo treatment similar to that of the "ension "lans. /or I/42, the only difference is that "ast ser#ice contri!utions and actuarialgains and losses ould !e immediately recogni7ed =not included in 6CI>.

g> The disclosure under A2E is greatly reduced in com"arison ith I/42,kee"ing in mind that the "rimary users of A2E statements are creditorsthat ould likely ha#e access to information from management. This isnot the case for I/42 "re"ared statements, here all ty"es of in#estorsand creditors could !e users, so there is a significant amount of disclosurereDuired.

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CASES

No$e See $0e C/se Pri"er o% $0e S$*,e%$ ;esi$e5 /s ;e!! /s$0e S*""/r+ of $0e C/se Pri"er i% $0e fro%$ of $0e $ex$3 No$e$0/$ $0e firs$ fe; c0/p$ers i% )o!*"e 1 !/+ $0e fo*%,/$io% for fi%/%ci/! repor$i%& ,ecisio% "/?i%&3

CA 19.1

O)er)ie;• (elmar Manufacturing Inc. =(M> is o"erating in a sta!le

en#ironment !ut current income has !een im"acted !y the costof e0"ansion and construction of a manufacturing facility in

another "ro#ince.• Bsers 8 The Management and ension Committee of (M ill

!e re#ieing the im"act on the financial statements that the

"ension accounting entries and "resentation ill ha#e. There

may !e a greater "reference for (M to ado"t the accounting

"olicy choice that allos for less #olatility in net income.•

4ole 8 as a consultant an o!9ecti#e and trans"arent financialre"orting o!9ecti#e is ado"ted. Consideration of future

accounting changes and the im"act to (M is s"ecifically

reDuested.• AA 8 (M is "ri#ate and has the o"tion to follo A2E.

(ifferences !eteen I/42 and A2E are s"ecifically reDuested

for this case. The com"any follos the immediate recognition

a""roach and does not "lan to change the accounting "olicy for

"ensions.

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CA 19.1 'Co%$i%*e,(

Iss*e Tre/$"e%$ of $0e specific pe%sio% co"po%e%$s(M+s Het :enefit 6!ligation for $*1$ "resented on the financial

statements is net of /und Assets of N-*,***. Therefore, the

"ension o!ligation must !e N%,1&',***5.

5=:enefit 6!ligation N%,1&',*** less /und Assets N-*,*** yields the

Het :enefit 6!ligation of N$,1)',*** on (M+s financial statements>

I/42 8 immediate recognition=(:6> 8 (efined :enefit

6!ligation

A2E 8immediate recognition =A:6> 33 Accrued :enefit6!ligation

Current ser#ice cost of

N$%),*** is recorded in netincome as "ension e0"ense.

ast ser#ice costsF (M must

recogni7e the entire N-),***in the $*1% fiscal year ithinnet income.

Current year e0"ense of

N$%),*** is recorded innet income as "ensione0"ense.

ast ser#ice costs 8 the

full amount must !erecogni7ed in the $*1%

fiscal year.Continued

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CA 19.1 'Co%$i%*e,(


6!ligation


Interest e0"enseF the

discount rate used tocom"ute interest accrued onthe defined !enefit o!ligation=(:6> for $*1% must !eeDui#alent to the yield on ahigh3Duality de!t instrument

8 in (M+s case the -current yield on high3Dualitycor"orate !onds.

Interest e0"ense for $*1% is

calculated asFO(:6 on ;an 1 N%,1&',*** P

the immediate recognition of

"ast ser#ice cost N-),***

reduced !y the a#erage ofretirement "ayments of

N%&,*** =or %&,***<$> "aid

throughout the yearQ 0 - R

$-*,1)*. This amount must

!e recorded ithin net

income for $*1% as net

interest.

The same - rate must !ea""lied to the e0"ectedreturn on "lan assets.

Interest e0"enseF the

discount rate used tocom"ute the interestaccrued on the accrued!enefit o!ligation =A:6>for $*1% has a similarreDuirement as I/42 8

current market rate on ahigh3Duality de!tinstrument.

(M can use the

settlement rate tocalculate interest on the

A:6 if it "lans to "urchasean insurance contract to

settle its lia!ility. As (Mhas s"ecifically eliminatedthis o"tion the - !etterreflects the e0"ectedsettlement cost of thelia!ility.

The interest e0"ense is

calculated in the same

manner as under I/42.

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CA 19.1 'Co%$i%*e,(


6!ligation


The e0"ected return on "lan

assets under I/42 must !ecalculated using the currentyield on high3Duality !onds=->. This is a""lied to theeighted a#erage fund asset!alance of N1,**,***

O=N-*,***PN1,*%&,***><$ RN1,**,***Q

Total e0"ected return on

"lan assets is N-*,)%*. A com!ined net interest of

N1--,'%* ill !e reflected inthe e0"ense and in netincome.

The total difference of

N&,1%* =N-*,)%* 3 N1),'**>is treated as a re3measurement loss and isrecorded in 6CI.

The actual return on fund

assets of N1),'** isincluded in "ensione0"ense and therefore innet income =as are allchanges in thesur"lus<deficit of the "lan>.

The actuarial loss must !e

reflected immediately 8 theN'',*** resulting from thechange in assum"tions andthe N1-,*** resulting from

the change in e0"ected andactual actuary costs isaccounted for incom"rehensi#e income 8through the 6CI. A total ofN&,*** in 6CI for fiscal$*1%.

Bnder A2E 8 the

actuarial loss isimmediately recorded innet income.

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CA 19.1 'Co%$i%*e,(

Co%c!*sio% The case illustrates the treatment o"tions under theI/42 and A2E 8 immediate recognition.

Iss*e Prese%$/$io% of $0e fi%/! o!i&/$io% o% $0e fi%/%ci/!s$/$e"e%$s

I/42 A2E The (:6 calculated !y

management re"resents the!enefit o!ligation used in

the net !enefit calculation.

The net o!ligation oing or

recei#a!le from the "lan is

"resented on the :alance2heet.

The o#erall funded status of

the "lan under I/42 is

calculated as follosF(:6 at (ec %1

N%,*,)-*3/G of A at (ec %1

N1,*'*,'**

Het (efined :enefit ia!ility isN$,',1-*.

The A:6 calculated !y

management may

re"resent the !enefit

o!ligation used in the net!enefit calculation. The

final !enefit o!ligation on

the financial statements

must !e u"dated !y the

actuary. The net o!ligation oing or

recei#a!le from the "lan is

"resented on the :alance2heet.

The o#erall funded status of

the "lan under A2E is

calculated asF(:6 at (ec %1

N%,*,)-*3/G of /A at (ec %1

N1,*'*,'**

If management+s estimates result

in the same calculation as the

actuary, the Het (efined :enefit

ia!ility is N$,',1-*.

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CA 19.1 'Co%$i%*e,(I/42 A2E The (:6 at the end of the

"eriod is calculated asF(:6 8 ;an 1

N%,1&',***Pcurrent ser#ice cost

$%),***P"ast ser#ice costs

-),***3 !enefits "aid

=%&,***>

Pinterest e0"ense$-1,)-*Pactuarial loss

&,***(:6 8 (ec %1

N%,*,)-*

The A:6 at the end of the

"eriod is calculated in thesame manner as underI/42. The difference in

A2E is the #aria!ility inthe "ension e0"ense.Bnder A2E the actuarialloss of N&,*** is reflectedin the "ension e0"ense.

The lan Assets at the end

of the "eriod is calculatedasFA 8 ;an 1N-*,***Pcontri!utions,***Pactual return1),'**3!enefits "aid to retirees=%&,***>A 8 (ec %1

N1,*'*,'**The difference in the

e0"ected return and the

actual return is reflected in

the 6CI.

The /und Assets at the end

of the "eriod is calculated inthe same manner as underI/42. The difference in

A2E is that the actualreturn is reflected in the"ension e0"ense.

Bnder I/42, (M can 2ame a""lies under A2E.

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segregate the !enefit costs=ser#ice cost, interest costand e0"ected return> on the

income statement or"resent as a com!ined!enefit cost.

Reco""e%,/$io% (M is "ri#ate and can choose to follo the Sdefer and amorti7e+ a""roach for "ension accounting. A2E guidance istransitioning toards eliminating this a""roach for the future. It isad#isa!le for (M to continue to follo the immediate recognitiona""roach, hich is more trans"arent.



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IC 19.1

6#er#ie

-u!lic com"any since shares trade on national stock e0change

8 therefore I/42 constraint- May !e some !ias to sho com"any in !est light gi#en

significant !ank loans 8 de!t to eDuity ratio is a key ratio as

!ank ill assess and likely use in setting cost of ca"ital 8 ca"ital

intensi#e gi#en large e0"enditures in e0"loration and

de#elo"ment =therefore de!t likely high>- In#estors ill likely ant information a!out "otential reser#es

and also riskiness of assets- En#ironmentalists ill use the statements as e#idence of

hether the com"any is !eing en#ironmentally res"onsi!le and

not making e0cess "rofits at the e0"ense of the en#ironment- 2ince the funding for the ne !enefit "lan is !ased on net

income, any issue that affects net income ill !e a significant

one 8 es"ecially for the em"loyees ho are "art of the "lan.- As controller 8 ill ant to !e trans"arent yet not e0"ose the

com"any to any additional risks from en#ironmentalists nor

increase the cost of ca"ital



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IC 19.1 'Co%$i%*e,(

A%/!+sis /%, reco""e%,/$io%s

Mine A de"reciationCom"onenti7e railay cars<rails (o not

- 2hould treat cars andtracks as se"arate andamorti7e o#er different"eriod or using differentmethod since they ha#ediffering li#es and usage.

- The mineral "ro"ertyde"reciation should !e!ased on reser#es andde"letion hereas therailay system on usage.

- The com"any may !e a!leto sal#age and sell therailay system at the end 8or reuse.

- :etter to se"arate theeDui"ment from the

"ro"erty 8 moretrans"arent.

- Mine ill last 1* years andso 9ust amorti7e all o#er 1*years.

- Costs to com"onenti7e notorth it 8 costs e0ceed!enefits.

- Will likely a!andon mineafter that so likely littleresidual #alue in railaycars and tracks.

4ecommendationF It is more trans"arent to se"arate out thesignificant com"onents and de"reciate se"arately.

(e"letion:ased on high estimate ofreser#es =% higher so significantdifference>

:ased on lo estimate ofreser#es

-oer de"letion

- (ifficult to estimatehoe#er engineers andgeologists ha#e esta!lishedthe higher le#el 8 for suremore than the lo endestimate hich is o#erly

-Ligher 8 so moreconser#ati#e

- 2ignificant uncertainty sinceengineers and geologistsnot a!le to come u" ithconcrete num!er

- Will !e a!le to refine as the

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conser#ati#e mining "rogresses

IC 19.1 'Co%$i%*e,(

4ecommendationF It ould !e "rudent to use the loer estimate ofreser#es due to the significant uncertainty.

Mine : e0"loration costsCa"itali7e E0"ense

- Interest costs must !eca"itali7ed as long as theyare directly related to the"roducing mine.

- All other costs related to!ringing the mine into"roduction are ca"itali7edas long as directly related.

- May include seniormanagement salaries asneed to s"end more timedue to "olitical insta!ility incountry 8 need to negotiatedirectly related to getting

the mine ready.- The com"any !elie#es that

the mine ill contri!ute tofuture cash flos that theyha#e access to 8 otherisethey ould not !e s"endingthe money on de#elo"ingthe "ro"erty.

- 2ignificant uncertainty as tohether sufficient gold oreactually e0ists ofcommercial grade.

- 6ne time fee 8 like a !ri!e 8should likely e0"ense ifnormal cost of doing!usiness in this ty"e ofen#ironment.

- May need to disclose.- 2enior management salary

fi0ed cost and ould s"endthis anyay 8 more likeo#erhead 8 normal ongoing

cost of doing !usiness.

4ecommendationF 6#erall, the com"any !elie#es that the land is

orth de#elo"ing and therefore the costs should !e ca"itali7ed.

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IC 19.1 'Co%$i%*e,(

Mine C A46

Accrue (o not- Must accrue if likely and

measura!le 8 since they arein the !usiness of mining 8must !e a!le to measure theestimated cost of cleanu".

- It a""ears as though it ismeasurea!le sincemanagement knos that it

ill !e material.- En#ironmentalist ould find

this useful info and thereforefull recognition ould gi#e it"rominence and #isi!ility.

- E#en if a!andoned 8 stillha#e a res"onsi!ility to cleanu".

- Will likely a!andon andtherefore e0"enditure on

A46 not "ro!a!le.- Hot yet reDuired !y la

therefore no legalo!ligation.

4ecommendationF ro!a!ly !etter to accrue.

6il rigsCa"itali7e maintenance E0"ense

- /uture !enefit 8 $ years andtherefore meets thedefinition of an asset.

- Cost #ersus !enefits 8 notorth it to ca"itali7e sincethe !enefit is only toyears.

- More like an ongoing costof doing !usiness 8 need to

maintain the eDui"ment tokee" it in good orkingorder.

4ecommendationF It is !etter to e0"ense as it is normal maintenance.as in ca#es 8 e0"ense since ill not !e a!le to sell. This is anongoing cost of doing !usiness.

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IC 19.1 'Co%$i%*e,(

Treat ore "iles as in#entory or lea#e as "art of mine 8 likely the lattersince not yet refined.

6ther issueF (etails a!out the ne long3term !enefit "lan for theem"loyees are needed. There may !e recognition and measurementissues that need to !e resol#ed, de"ending on the "lan s"ecifications.

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RESEARCH AND FINANCIAL ANALYSIS

RA19.1 BCE INC3

All of the ansers !elo are taken from Hote $* of the $*11 financial statements.

=a> The "lan asset and accrued !enefit o!ligation !alances at the end of years

$*11 and $*1* are "resented !elo.

=in Nmillions > Dec3 715 811 Dec3 715 81 Accrued !enefit

o!ligation 1,&$ 1),$-

lan assets 1),%& 1&,%'

/unded status8deficit 1,* 1,&)%

The "lan deficit is N1,* million !efore taking into account the effect of the

asset limit of N1)- million =the effect of the asset limit as N1-$ million in $*1* 3

see Hote $* for details>. The under3funded status has im"ro#ed since the end of

the $*1* mainly !ecause the em"loyer made a large contri!ution of N1.&& !illion

in $*11 com"ared to N1.$ !illion in $*1*. At the same time, the actual return on

the "lan assets as a gain of N& million in $*11 com"ared to a gain of N1,&'

million in $*1*. While the actuarial losses on the A:6 decreased from N1,*

million in $*1* to N)& million in $*11. lans in a net deficit "osition total N1,$,

and those in a net sur"lus "osition total N%1.

=!> The reconciliation of the funded status of these "lans at (ecem!er %1, $*11,

to the amounts re"orted on the !alance sheet is as follosF

=in Nmillions>Dec3 715

811

/unded status8deficit N =1,*>Effect of asset limit =1)->Het accrued !enefit lia!iility =1,$'>4e"orted in non3current assetsF Em"loyee !enefit asset N %14e"orted in non3current lia!ilitiesF Em"loyee !enefito!ligation 5

N =1,$>

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RA19.1 'CONTINUED(

The com"any is shoing an em"loyee !enefit o!ligation of N1,$ relating to its

"ension !enefits, hich e0ceeds its funded status deficit due mainly to the effect

of the asset limit reDuirements. This is much more realistic than hat :CE

re"orted in $**- under the defer and amorti7e a""roach. =You may ish to refer

to the $**- :CE annual re"ort for $**- a#aila!le on 2E(A4 for further details>.

=c> The com"any+s results are shon !elo in the ta!leF =in Nmillions>

E0"ected return on "lan assets 1,*1

Actual return on "lan assets &

=d> The e0"ense re"orted for the defined !enefit "ension "lans is N- million.

The main com"onents of the cost of the defined !enefit "ension "lans ere as

follosF

Current ser#ice cost $$*

Interest cost

E0"ected return on "lan assets =1,*1>

-

This is su!stantially loer than the e0"ense under the immediate recognition of

A2E, mainly !ecause under I/42 actuarial losses re"orted in 6CI totalling

N-)$ million ould ha#e !een charged directly to e0"ense.

=e> :CE has other "ost3em"loyment "lans that "ro#ide for health and life

insurance co#erage, !ut these "lans are !eing "hased out o#er the 1* years

ending (ecem!er %1, $*1). The com"any also "ro#ides some orkers ith

disa!ility "lans, orkers+ com"ensation and medical !enefits to former

em"loyees until their retirement commences. These "lans ere a large deficit"osition at (ecem!er %1, $*11 and $*1* of N1,) million and N1,)1& million.

The com"any has fe assets to fund these "lans. /or $*11 and $*1*, the

com"any re"orted related A:6+s of N1,-' and N1,$% million res"ecti#ely.

=f> The total e0"ense for the defined contri!ution "lans ereF N)1 million and N&

million for $*11 and $*1*, res"ecti#ely.

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RA 19.8 CANADIAN NATIONAL RAIL#AY

=a> As indicated from the notes, the "ension "lans ere in asur"lus in $*1*, !ut mo#ed into a deficit "osition for $*11. At (ecem!er %1,

$*1* and $*11, the sur"lus =deficit> amounts ere NB2 1- million and NB2=$-> million, res"ecti#ely.

=!> The e0"ense is re"orted as a negati#e NB2 * million in $*11 and negati#eNB2 * million in $*1* =that is, it is in an income "osition for !oth years>. This isa relati#ely small change year o#er year =relati#e to the si7e of the o#erall"ension "lan>. The e0"ected return on the "lan assets has caused a "lan to !ein an income, rather than an e0"ense "osition for !oth years. This e0"ected gainas higher than the current ser#ice cost and the interest cost for !oth years.This could !e !ecause the "lan assets ere greater than the o!ligation in $*1*and at the !eginning of $*11. This ould cause returns on assets to !e higher.

Loe#er it should !e noted that in $*11, the com"any had an actual return thatas much loer than their e0"ected return =N%) million #s. N1,**' million>. If thisdoes not im"ro#e in $*1$, it could e#entually lead to "ension cost to !e in ane0"ense "osition =in $*1$ or $*1%>.

=c> The amount of cash flo incurred to fund the "lan for $*11 as NB2 &'million and NB2 &11 million for $*1*. (ifferences in the year o#er year amountsto fund the "lan could !e !ased on the num!er of em"loyees still in the "lan or the amount of sur"lus !eing used to fund the "lan in $*1*. In the case of CH, itis likely that ith the large sur"lus in $*1*, the com"any as a!le to make loer contri!utions in $*1*. In !oth years, the amount of the e0"ense is loer than the

actual amount reDuired to fund the "lan =as indicated !y the sur"lus turning into adeficit "osition o#er the to year "eriod>.

=d> This is an interesting Duestion for the com"any =and other com"anies thatha#e mo#ed from J(efer and Amorti7e to JImmediate 4ecognition>. 2ince theymo#ed from the defer3and3amorti7e a""roach se#eral years ago, the financialstatement "resentation is more realistic than it has !een. Loe#er, under I/42the com"any is a!le to record remeasurement gains and losses =and actuarialgains and losses> in 6CI. In this res"ect, the com"any can still Jdefer the im"actof actual losses from the "lan on E2. This reflects the e0"ectation that thelosses may re#erse e#entually and !e re"laced ith higher than e0"ected gains.

6#erall, the increase in accumulated 6CI loss related to the "ension "lan in $*11as NB2 1,')* million =re"orted se"arately in CH4+s annual re"ort>.

/or the knoledgea!le user, since all of the information is "ro#ided in the notes,they can easily make any ad9ustments to the e0"ense that they ish in their analysis. i#en this, e could conclude that the information is faithfullyre"resented.

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RA19-3 RESEARCH TOPIC

=a> 4ele#ant rates used to calculate "ension informationF

811

Air C/%/,/

818

B/%? of

Mo%$re/!

811

Ro%/ I%c3

(iscount rate

4ate of com"ensation

increase

E0"ected long3term

rate of return on "lan

assets

'.$

$.'*

).-

'.1

%.%

'.-

'.*

%.

).*

=!> The discount rates are fairly similar for all three com"anies. The e0"ected

rates of com"ensation increases though are different. Air Canada+s rate of

$.' is the loest, ith 46HA and :ank of Montreal ha#ing similar rates of

%.% and %.. This difference ill ha#e a significant im"act on the

"ro9ected amount of the accrued !enefit o!ligation. The e0"ected rates of

returns are similar ranging from '.- for the :ank of Montreal to Air Canada

of ).-. Loe#er, e#en seemingly small differences in these "ercentages

can !e significant =e.g., the difference of ).* #s. ).- for 46HA and Air

Canada is a 1' difference in discount rates>. (ifferences in discount rates

like these can result in significant differences in the determination of theunderlying amounts such as the (:6 or A:6.

=c> The changes in the assum"tions during the "eriod co#ered in the notes of

the com"anies+ financial statements are "resented !elo.

Air C/%/,/B/%? of

Mo%$re/!RONA

(iscount rate (ecreased !y

*.% from '.'

to '.$

(ecreased !y

*.1 from '.$

to '.1

(ecreased !y

*.' from '.'

to '.*

4ate of

com"ensation

increase

Ho change,

remains at $.'

Increased *.1

from %.$ to

%.%

Increased !y

*.1 from %.)

to %.

E0"ected long3

term rate of

(ecreased *.1

from .* to

(ecreased *.&

from ).% to

Ho change,

remains at )

2olutions Manual 1-31))


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return on "lan

assets).- '.-

RA19.7 'Co%$i%*e,(

The most significant change as in the discount rate used. All three

com"anies decreased their discount rates ith the range !eing *.1 to

*.'. This ill result in a loer interest cost hich ill decrease the

"ension e0"ense, and increase the accrued !enefit o!ligation.

The small increase in the rate of e0"ected com"ensation increase for :ank

of Montreal and 46HA ill increase their "ension e0"ense and the

o!ligation. In addition, an increase in the rate of com"ensation ould also

result in an actuarial loss. Increases in "ension e0"ense resulting from

changes in assum"tions ould ha#e the effect of increasing the accrued"ension lia!ility =or decreasing a "re"aid "ension cost>, all else !eing eDual.

=d> Air CanadaF The com"any "ro#ides to its em"loyees defined !enefit and

defined contri!ution retirement !enefits and other "ost3em"loyment !enefits

such as health, life and disa!ility. Assum"tions statedF (iscount rate is '.$

and rate increase in health care costs are .', ith cost trend rates

declining to '.* !y $*1'.

:ank of MontrealF The com"any "ro#ides defined !enefit and definedcontri!ution "ension "lans for its em"loyees, in addition to health and dental

and life insurance !enefits for retirees and current em"loyees. Assum"tions

statedF (iscount rate is '.1, 4ate of com"ensation increase is %.%, and

ultimate health care cost trend rate is '.&.

46HA Inc.F 46HA "ro#ides defined !enefit and defined contri!ution

"ension "lans for its em"loyees. It does not "ro#ide any "ost3em"loyment

medical "lans.

The ty"es of assum"tions made are standard among com"anies, de"endingon the actual "ost3em"loyment !enefits "ro#ided. The rates a""lied in

Duantifying the com"onents of the medical !enefits are similar, although

ithin a !roader range of '.* to .'. These rates ill ha#e a significant

effect on the health3care "lans o!ligation and related e0"ense, !ut the long

run trends e0"ected are more similar for Air Canada and the :ank of

Montreal.



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RA19.7 'Co%$i%*e,(

=e> :elo is the information on the defined !enefit "ension "lan and "ost3

retirement !enefit "lans for $*11 fiscal year end =$*1$ for :ank ofMontreal>.

Air C/%/,/

"i!!io%s

B/%? of

Mo%$re/!

"i!!io%s

RONA

$0o*s/%,s

(efined !enefit

"lans

/unded status

=deficit> sur"lus

=&,'1-> =$1*> =&,)1*>

Actual amount

=lia!ilities><assets

re"orted

=&,'1-> &)' =),1-$>

(ifference * =)'> 1,'$

6ther em"loyee

!enefits

/unded status

=deficit> sur"lus

=1,11)> =1,*)> H<A

Actual amount=lia!ilities><assets

re"orted

=1,*&&> =--> H<A

(ifference =$> =-> H<A

There ere some significant differences in the #alues recogni7ed in the

financial statements for the defined !enefit lia!ilities or assets and the actual

funded status of the "lans. /or e0am"le, the difference of N1,'$ for 46HA

relates to the fact that 46HA does not ha#e an unconditional right to any

sur"luses in indi#idual "lans, so the lia!ility re"orted is greater than the

funded status deficit at the financial re"orting date. The N)' difference for

the :ank of Montreal relates to use of the deferral and amorti7ation method

!y the !ank for $*1$. The difference relates mainly to a loss on the !enefit

lia!ility not yet recorded relating to changes in assum"tions. The ne

standard reDuiring use of immediate recognition must !e ado"ted !y the

2olutions Manual 1-31)-


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!ank for its fiscal year starting Ho#em!er 1, $*1%, so !y the end of fiscal

$*1%3$*1& the difference is likely to !e eliminated.



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RA19.: RESEARCH TOPIC

The Ac2: has "ro"osed re"lacing e0isting CICA Land!ook 2ection %&)1

ith 2ection %&)$. Currently, under 2ection %&)1 of A2E, a com"any canuse either the deferral and amorti7ation a""roach or the immediate

recognition a""roach for accounting for their "ension !enefits. Bnder the

ne "ro"osals, the deferral and amorti7ation a""roach ould !e

eliminated.

In addition, ne 2ection %&)$ ould reDuire that "lan o!ligations and "lan

assets !e measured at the !alance sheet date, rather than ha#ing the

o"tion of using a date of u" to three months "rior to the !alance sheet date.

The ne section also utili7es similar terminology to that used under IA2 1-

=for e0am"le, using the term defined !enefit o!ligation, rather than accrued

!enefit o!ligation and using the term defined !enefit lia!ility =asset> on the

!alance sheet rather than the term accrued !enefit lia!ility =asset>>. This

should hel" to minimi7e confusion hen com"aring the financial statements

for com"anies using I/42 #s. A2E.

Bnder the ne section, com"anies ould no longer need to refer to the

e0"ected rate of return on "lan assets hen calculating "ension e0"ense

=as as done under the deferral and amorti7ation method>. The actual rateof return is used under the immediate recognition a""roach of A2E hen

determining "ension e0"ense. 2ince A2E does not utili7e 6CI, there is

no need to consider the e0"ected rate of return =it is still referred to under

I/42 for determination of remeasurement gains and losses relating to "lan

assets, ith such gain and losses floing through 6CI>.

Com"anies ould use the same discount rate to determine the limit on the

carrying amount of a defined !enefit asset as they use for the (:6. This is

a change, as they used to use the e0"ected rate of return on "lan assets

for calculating the limit on the carrying amount of a defined !enefit asset.Com"anies ould also use the same discount rate as used for the (:6 in

order to determine remeasurement gains or losses related to "lan assets

=similar to I/42>. Loe#er, hile such remeasurement gains or losses

ould !e charged to 6CI under I/42, under the ne A2E section the

remeasurement gains or losses ould 9ust !e reDuired to !e disclosed =not

recorded se"arately>.



7/25/2019 sm ch (19).doc




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sm ch (19).doc