Employee-benefits_answerkey.docx

1. Employee benefits are a. All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. b. Benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. (Short-term benefits) c. Benefits that are payable after the completion of employment. (Post Employment Benefits) d. Benefits other than short-term employee benefits, post-employment benefits and termination benefits (Other long term benefits) 2. Post-employment benefits include a. Benefits provided in exchange for the termination of an employee’s employment. (termination) b. Paid annual leave and paid sick leave. (Short term) c. Long service leave (Other long term benefits) d. Pensions 3. Which of the following is a characteristic of a defined benefit plan? a. The entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. b. The amount of post-employment benefits received by the employee is determined by the amount of contributions paid by an entity to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. c. Actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee. d. If actuarial or investment experience are worse than expected, the entity’s obligation may be increased. (Possibility of actuarial gains and losses) 4. The deficit or surplus is: a. The present value of the defined benefit obligation b. The fair value of plan assets FV of PA > PV DBO Surplus c. The difference between a and b d. The total of a and b 5. Service cost excludes a. The increase in the present value of the defined benefit obligation resulting from employee service in the current period (Current Service Cost) b. The change in the present value of the defined benefit obligation for employee service in prior periods, resulting from a plan amendment or a curtailment (a significant reduction by the entity in the number of employees covered by a plan) (Past Service Cost) c. The difference between the present value of the defined benefit obligation being settled, as determined on the date of settlement and the settlement price, including any plan assets

transferred and any payments made directly by the entity in connection with the settlement. (Gain or Loss on Settlement) d. The change during the period in the net defined benefit liability (asset) that arises from the passage of time 6. Remeasurements of the net defined benefit liability (asset) exclude a. Actuarial gains and losses b. The return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset) c. Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined liability (asset) d. The change during the period in the net defined benefit liability (asset) that arises from the passage of time (Interest Cost) PROBLEM 1 Kamille Company reported that the employees are each entitled to two weeks of paid vacation leave. During the current year, the employees earned 1,500 weeks of vacation leave and used 1,000 weeks. The current salary of the employees is an average of P3,000 per week and the salary is expected to increase by P300 per week or a future weekly salary of P3,300. 1. What is the vacation pay expense if the benefit is accumulating and vesting? a. 3,000,000 b. 4,500,000 c. 4,650,000 d. 4,950,000 2. What is the vacation pay expense if the benefit is nonaccumulating and nonvesting? a. 3,000,000 b. 4,500,000 c. 4,650,000 d. 4,950,000 Question 1 Answer C Vacation weeks used (1,000 x 3,000) Vacation weeks unused ( 500 x 3,300) Total Vacation Pay Expense

3,000,000 1,650,000 4,650,000

Accumulating and vesting paid absences are those that can be carried forward and the employees are entitled to a cash payment for unused entitlement upon leaving the entity. Question 2 Answer A Vacation Pay Expense (1,000 x 3,000)

3,000,000

Nonaccumulating and nonvesting paid absences are those that cannot be carried forward and the employees are not entitled to a cash payment for unused entitlement upon leaving the entity. PROBLEM 2 Pope Company provided the following information about the earned vacation days during the first year of operations: Employees 1 2 3

Average wage per day 400 600 800

Vacation days earned this year 10 15 20

Vacation days taken this year 10 10 5

What amount should be reported as accrued vacation pay on December 31? a. 29,000 b. 14,000 c. 15,000 d. 0 Answer C Employee 2 Employee 3 Accrued vacation pay

(600 x 5 days not taken) (800 x 15 days not taken)

3,000 12,000 15,000

PROBLEM 3 Elaine Company gives each of the 50 employees 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2015, they made P70 per hour and in 2016 they made P80 per hour. During 2015, they took an average of 9 days of vacation each. The entity’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability should be reported on December 31, 2016 a. 468,000 b. 480,000 c. 336,000 d. 384,000 Answer B Vacations days in 2015 Vacations days in 2016

12 12

Total Vacation days taken in 2016 Vacation days not taken – 12/31/2016

24 (9) 15

Accrued liability – 12/31/2016 ( 50 x 15 x 8 hours x P80)

480,000

Note that the entity’s policy is to accrue liability at end of each year at the wage rate for that year. Jessie Co, sponsors a defined benefit pension plan. For the current year ended December 31, the following information relevant to the plan has been accumulated: Defined benefit obligation, 1/1 P10,000,000 Fair value of plan assets, 1/1 9,000,000 Current service cost 1,000,000 Past service cost 2,000,000 Gain on settlement 500,000 Actual return on plan assets 630,000 Increase in defined benefit obligation due to changes in actuarial assumptions 800,000 Market yield on high quality corporate bonds 6% Yield on bonds issued by the entity 8% Expected return on plan assets 9% 7. Calculate the amount that the entity would recognize in profit or loss for the year in accordance with the revised PAS 19 a. P2,560,000 b. P2,570,000 c. P2,580,000 d. P2,590,000 Current service cost Past service cost Gain on settlement Net Interest Cost DBO (10,000,000 x 6%) FV of PA (9,000,000 x 6%)

1,000,000 2,000,000 (500,000)

600,000 540,000

60,000

8. Calculate the amount that the entity would recognize in other comprehensive income for the year in accordance with the revised PAS 19 a. P710,000 b. P790,000 c. P800,000 d. P890,000 Remeasurement Actuarial Loss Actual Return on Plan Assets Interest Income

800,000 630,000 540,000

(90,000) Remeasurement Gain 710,000

At the beginning of the current year, the memorandum records of Anne Company’s defined benefit plan showed the following: Fair value of plan assets P 7,500,000 Defined benefit obligation (11,000,000) Prepaid (accrued) pension expense (P3,500,000)

The entity determined that its current service cost was P1,000,000 and the interest cost is 10%. The expected return on plan assets was 12% but the actual return during the year was 8%. Other related information at the end of the year: Contribution to the plan P 1,200,000 Benefits paid to retirees 1,500,000 Decrease in defined benefit obligation due to changes in actuarial assumption 200,000 9. Calculate the amount that the entity would recognize in profit or loss for the year in accordance with the revised PAS 19 a. P1,000,000 b. P1,100,000 c. P1,200,000 d. P1,350,000 Current service cost Net Interest Cost Net Interest Cost DBO (11,000,000 x 10%) FV of PA (7,500,000 x 10%)

1,000,000 350,000

1,100,000 750,000

350,000

10. Calculate the net amount that the entity would recognize in OCI for the year in accordance with the revised PAS 19 a. P200,000 gain b. P200,000 loss c. P50,000 loss d. P50,000 gain Remeasurement Actuarial Gain Actual Return on Plan Assets (7,500x 8%) 600,000 Interest Income (750,000)

200,000 (150,000) Remeasurement loss

11. The fair value of plan assets at the end of the current year is a. P8,700,000 b. P8,250,000 c. P7,950,000 FV of Plan Assets, Beg Contribution to the Plan Actual Return on Plan Assets Benefits Paid

d. P7,800,000

7,500,000 1,200,000 600,000 (1,500,000)

12. Which statement is incorrect regarding short-term employee benefits? a. Short-term employee benefits include non-monetary benefits for current employees if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. b. An entity need not reclassify a short-term employee benefit if the entity’s expectations of the timing of settlement change temporarily.

c. If profit-sharing and bonus payments are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, those payments are other long-term employee benefits. d. PAS 19 requires disclosures about short-term employee benefits for key management personnel (RELATED PARTY DISCLOSURES)