POSTEMPLOYME

NT BENEFIT
Group 6 BSA IV
 PROBLEM NO. 3

On January 1, 2016, Lukas Company has the following

balances:
Projected benefit obligation P4,200,000
Fair value of plan assets 3,750,000

The discount rate is 10%. Other data related to the

pension plan for 2016 are:
Current service cost P240,000
Past service cost 54,000
Contributions 270,000
Benefits paid 225,000
Actual return in plan asset 264,000
Actuarial gain (decrease in PBO) 18,000
 Requirements:
1. What is the benefit expense to be reported under
profit or loss in the 2016 income statement?
2. What is the benefit expense to be reported
Answer
as
component of other comprehensive income under
shareholders equity on December 31, 2016?
3. Make a reconciliation of the balanceAnswer
of the
Accrued/prepaid benefit cost as of December 31,
2016.
Answer

4. If there is a previous unamortized actuarial gain,

what is the effect of such balance in the fist time
application of the new standard on employee
Answer
benefits? Explain.
 Solution #1:
1. What is the benefit expense to be reported under
profit or loss in the 2016 income statement?
Current Service Cost P240,000
Past Service Cost 54,000
Interest Expense 420,000a
Interest Income (375,000)b
Employee Benefit Expense
P339,000

a) PBO, Jan.1 x discount rate =4,200,000 x 10%

= 420,000
b) FVPA, Jan. 1 x discount rate =3,750,000 x
10% = 375,000 Requirements:
 Solution #2:
2. What is the benefit expense to be reported as
component of other comprehensive income under
shareholders equity on December 31, 2016?

Actual return on plan assets

P264,000
Interest Income (375,000)
Remeasurement loss on plan asset
(111,000)
Actuarial gain 18,000
Net remeasurement loss
(P93.000)

Requirements:
 Solution #3:
3. Make a reconciliation of the balance of the
Accrued/prepaid benefit cost as of December 31,
2016.Approach
Worksheet DEBIT(CREDIT)
GeneralJournal Memorandum
Benefit
Remeasurement-OCI Expense Cash FVPA PBO
Balances-January1,2016 3,750,000 (4,200,000)
1.) Currentservicecost 240,000 (240,000)
2.) Pastservicecost 54,000 (54,000)
3.) InterestexpenseonPBO 420,000 (420,000)
4.) InterestincomeonFVPA (375,000) 375,000
5.) Contributiontotheplan (270,000) 270,000
6.) Benefitspaid (225,000) 225,000
7.) ActuarialgainonPBO (18,000) 18,000
8.) Remeasurementlossonplanassets 111,000 (111,000)
Balances - December 31, 2016 93,000 339,000 (270,000) 4,059,000 (4,671,000)

Requirements:
 Solution #4:
4. If there is a previous unamortized actuarial gain,
what is the effect of such balance in the fist time
application of the new standard on employee
benefits? Explain.
FollowingthePAS19R,thepreviousunamortizedactuarialgainis
eliminatedandaccountedforretrospectivelyasanadjustmentof
beginningbalanceofRetainedEarningsandtheyrenolongerbe
reportedineffect.

Theadjustmentonthebeginningoftheyear(Jan.1)toeliminatethe
unrecognizedactuarialgainisasfollows:

Prepaid/Accruedbenefitcost xx
RetainedEarnings xx

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