TB 19

CHAPTER 19
PENSIONS AND OTHER

POST-EMPLOYMENT BENEFITS
CHAPTER STUDY OBJECTIVES
1. Understand the importance of pensions from a business perspective. A pension plan,

together with post-retirement health care, is often part of an employee’s overall compensation
package. The size of these plans, in terms of both the number of employees and cost of
benefits, has made their costs very large (on average) relative to companies’ financial position,
operating income, and cash flows. With the vast majority of defined benefit plans being
underfunded, more and more companies are moving toward defined contribution plans.
2. Identify and account for a defined contribution plan. Defined contribution plans are plans
that specify how contributions are determined rather than what benefits the individual will
receive. They are accounted for similar to a cash basis.
3. Identify and explain what a defined benefit plan is and the related accounting issues.
Defined benefit plans specify the benefits that the employee is entitled to. Defined benefit plans
whose benefits vest or accumulate typically provide for the benefits to be a function of the
employee’s years of service and, for pensions, compensation level. In general, the employer’s
obligation for such a plan and the associated cost is accrued as an expense as the employee
provides the service. An actuary usually determines the required amounts.
4. Explain what the employer’s benefit obligation is, identify alternative measures for this
obligation, and prepare a continuity schedule of transactions and events that change its
balance. The employer’s benefit obligation is the actuarial present value of the benefits that
have been earned by employees for services they have provided up to the date of the statement
of financial position. The vested benefit method, accumulated benefit method, and projected
benefit method are three methods that could be used to measure companies’ obligations. The
third method is the one used to determine the defined benefit obligation, basing the calculation
of the deferred compensation amount on both vested and non-vested service using future
salaries. This last method is used under both IFRS and ASPE. The defined benefit obligation
(DBO) is increased by current service cost, net interest/finance cost, and plan amendments that
usually increase employee entitlements for prior services, and by actuarial losses. It is reduced
by payment of pension benefits and by actuarial gains.
5. Identify transactions and events that change benefit plan assets, and calculate the
balance of the plan assets. Plan assets are increased by company and employee
contributions and the actual return that is earned on fund assets (including realized and
unrealized gains and losses), and are reduced by pension benefits paid to retirees.
Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
19 - 2 Test Bank for Intermediate Accounting, Eleventh Canadian Edition
6. Explain what a benefit plan’s surplus or deficit is, calculate it, and identify what
transactions and events change its amount. A plan’s surplus or deficit is the difference
between the defined benefit obligation and the plan assets at a point in time. It tells you the
extent to which a company has a net obligation (underfunded) or a surplus (overfunded) relative
to the benefits that are promised. All items that change the plan assets and DBO, with the
exception of the payments to retirees, change the surplus or deficit.
7. Identify the components of pension expense, and account for a defined benefit
pension plan under IFRS and ASPE. Pension expense is a function of: (1) current service
cost, (2) finance cost including the net interest/finance cost on the net defined benefit
liability/asset and the remeasurement gain or loss on plan assets, (3) past service costs, and (4)
net actuarial gains or losses. Under ASPE, all are immediately included in current expense in
their entirety. Under IFRS, pension costs relating to current service, past service, and net
interest on the net defined benefit obligation are included in pension expense. Actuarial gains
and losses, and any return on plan assets excluding amounts included in the net interest on the
net defined benefit obligation (asset), are recognized in other comprehensive income.
8. Account for defined benefit plans with benefits that vest or accumulate other than
pension plans. Under ASPE, any non-pension defined benefit plans with benefits that vest or
accumulate are accounted for in the same way as defined benefit pension plans. Under IFRS,
short-term employee benefits are generally recognized (without discounting) at the amount
expected to be paid in exchange for the services provided. Other long-term benefits include
items such as paid absences for long service, unrestricted sabbaticals, and long-term disability
plans. IFRS requires the same recognition and measurement for these long-term benefits as for
pension plans. Specifically, changes in the liabilities related to these benefits should be reflected
in income. For termination benefits, IFRS requires the cost of the benefits to be recognized at
the earlier of when the company can no longer withdraw an offer of employment and when it
recognizes the related restructuring costs.
9. Identify the types of information required to be presented and disclosed for defined
benefit plans, prepare basic schedules, and be able to read and understand such
disclosures. ASPE requires a description of the plans, major changes made in the plans, dates
of the actuarial valuations, the fair value of the plan assets, the DBO, and the surplus or deficit
and how this relates to the balance sheet account. IFRS requires substantial information, such
as reconciliations of changes in the DBO and plan assets, details of amounts included in net
income, underlying assumptions and sensitivity analysis, and other information related to help
determine cash flows.
10. Identify differences between the IFRS and ASPE accounting for pensions and other
post-employment benefits and what changes are expected in the near future. IAS 19 is
broader and covers more employee benefits than does CPA Canada Handbook, Part II, Section
3462. With recognition of the net defined benefit liability (or asset) on the statement of financial
position with items such as current service cost, past service cost and interest on the DBO and
plan assets recognized in net income, and remeasurement changes and actuarial gains and
losses reported in other comprehensive income. ASPE is similar, except remeasurement
changes and actuarial gains and losses are reported in net income.
Pensions and Other Post-Employment Benefits 19 - 3
11 Explain and apply basic calculations to determine current service cost, the defined
benefit obligation, and past service cost for a one-person defined benefit pension plan.
The current service cost is a calculation of the present value of the benefits earned by
employees that is attributable to the current period. The defined benefit obligation is the present
value of the accumulated benefits earned to a point in time, according to the pension formula
and using projected salaries. Past service cost is the present value of the additional benefits
granted to employees in the case of a plan amendment.
MULTIPLE CHOICE—Conceptual
Answer No. Description
c 1. Employee future benefits
b 2. Types of post-employment benefits
c 3. Categories of employee future benefits plans
d 4. Pension funding and pension expense recognition
c 5. Nature of a defined contribution plan
d 6. Nature of a defined contribution plan
a 7. Recognition of past service costs
b 8. Nature of a defined benefit plan
b 9. Objective of accounting for defined benefit plans
c 10. Meaning of funding a pension plan
a 11. Accounting problems in pension plans
d 12. Main purpose of an actuary
b 13. Types of pension plans in Canada
a 14. Definition of defined benefit obligation
d 15. Characteristics of vested benefits
b 16. Increase in defined benefit obligation
c 17. Definition of attribution period
d 18. Definition of experience gain or loss
c 19. Methods of measuring pension obligations
a 20. Decrease in defined benefit obligation
b 21. Nature of interest cost included in pension cost
d 22. Economic risk of defined benefit plans
a 23. Nature of plan assets
b 24. Nature of return on plan assets
d 25. Nature of plan assets
b 26. Plan surplus/deficit
b 27. Underfunded pension plan
c 28. Pension plan surplus
a 29. Adjustment for actuarial valuations
c 30. Application of pension expense
c 31. Recognition of past service costs
b 32. Recognition of net defined benefit asset
a 33. G/L accounts used
c 34. Rationale for expensing past service costs
a 35. Advantage of immediate recognition approach
a 36. Recognition differences between IFRS and ASPE
c 37. Components of pension expense
a 38. Reporting net defined benefit liability/asset
c 39. Identify correct statement.
b 40. Post-employment benefits
c 41. Post-employment benefits
b 42. Recording/disclosure of post-employment benefit obligations
c 43. Recognizing employee benefits
d 44. Recognition of remeasurement of other employee future benefits
c 45. Disclosure of post-employment benefits
a 46. Disclosure analysis
d 47. Disclosure requirements
MULTIPLE CHOICE—Conceptual (cont’d)

d 48. Items reported to OCI
c 49. Differences between IFRS and ASPE
MULTIPLE CHOICE—Computational
Answer No. Description
d 50. Calculate defined benefit obligation.
b 51. Calculate fair value of plan assets.
a 52. Calculate fair value of plan assets.
a 53 Calculate fair value of plan assets.
c 54. Calculate fair value of plan assets.
b 55. Calculate fair value of plan assets.
b 56. Calculate pension expense.
c 57. Calculate pension expense.
d 59. Calculate pension expense.
a 60. Calculate pension expense.
b 61. Calculate net defined benefit liability/asset.
b 62. Calculate net defined benefit liability/asset.
d 63. Calculate pension expense.
c 66. Calculate defined benefit obligation.
d 68. Calculate defined benefit obligation.
a 69. Calculate net defined benefit liability/asset.
a 70. Calculate pension expense.
c *72. Calculate current service cost.
c *73. Calculate defined benefit obligation.
EXERCISES
Item Description
E19-74 Pension terminology
E19-75 Types of post-employment benefits
E19-76 Define defined contribution plan.
E19-77 Recognition of assets and liabilities under defined benefit plan
E19-78 What actuaries do and what assumptions they make.
E19-79 What is vesting?
E19-80 Pension accounting terminology
E19-81 Pension asset terminology
E19-82 Pension plan calculations
E19-83 Pension plan calculations and journal entries
E19-84 Different methods of measuring pension obligation
E19-85 Defined benefit obligation continuity schedule
E19-86 Plan asset continuity schedule.
E19-87 How the return on plan assets is calculated.
E19-88 Calculate plan surplus or deficit.
E19-89 Calculate plan surplus or deficit.
E19-90 Components of pension expense
E19-91 Measuring and recording pension expense.
E19-92 Measuring the recording pension expense.
E19-95 Differences between pensions and other post-employment benefits
E19-96 Accounting for defined benefit plans other than pension plans under ASPE and
IFRS
E19-97 Disclosure requirements
E19-98 Analyzing disclosure requirements
E19-99 Differences between ASPE and IFRS
E19-100 Differences between ASPE and IFRS
*E19-101 How to calculate current service cost, defined benefit obligation and past service
costs
*E19-102 Calculate current service cost.
PROBLEMS
Item Description
P19-103 Measuring and recording pension expense.
P19-104 Calculating pension expense and surplus/deficit.
P19-105 Preparation of a pension work sheet and pension entries
MULTIPLE CHOICE—Conceptual
1. Employee future benefits do NOT include

a) post-employment pension plans.
b) long-term severance benefits.
c) regular vacation pay.
d) unrestricted sabbatical leaves.
Answer: c
Difficulty: Medium
Learning Objective: Understand the importance of pensions from a business perspective.
Section Reference: Overview of Pensions and Their Importance from a Business Perspective
CPA: Financial Reporting
Bloomcode: Knowledge
2. Examples of post-employment benefits that are provided after employment but before
retirement include all EXCEPT
a) long-term disability income benefits.
b) pension plan.
c) long-term severance benefits.
d) continuation of benefits such as health care.
Answer: c
Difficulty: Easy
3. Categories of employee future benefit plans include

a) future earnings plan.
b) defined pension plan.
c) defined contribution plan.
d) health and benefits plan.
Answer: c
Difficulty: Easy
4. The relationship between the amount funded and the amount reported for pension expense is
that
a) pension expense must always equal the amount funded.
b) pension expense will be less than the amount funded.
c) pension expense will be more than the amount funded.
d) pension expense may be greater than, equal to, or less than the amount funded.
Answer: d
Difficulty: Easy
Learning Objective: Explain what the employer’s benefit obligation is, identify alternative
measures for this obligation, and prepare a continuity schedule of transactions and events that
change its balance.
Section Reference: The Employer’s Obligation
5. In a defined contribution plan, a formula is used that

a) defines the benefits that the employee will receive at retirement.
b) ensures that pension expense and the cash funding amount will be different.
c) requires an employer to contribute a certain sum each period based on the formula.
d) ensures that employers are not at risk to make sure funds are available at retirement.
Answer: d
Difficulty: Medium
Learning Objective: Identify and account for a defined contribution plan.
Section Reference: Defined Contribution Plans
6. The obligation for a defined contribution plan is calculated by

a) discounting the benefit the employee will receive at retirement.
b) add up contributions made plus interest earned less any benefits paid out.
c) the cumulative contributions made to the pension plan.
d) the amount the employer is obligated to contribute for the period.
Answer: d
Difficulty: Easy
Bloomcode: Comprehension
7. For ASPE and IFRS, the past service costs are

a) recognized immediately in expense.
b) deferred and amortized over the life of the pension.

c) not included in expenses.
d) restated in the year they are applicable to.
Answer: a
Difficulty: Easy
8. In a defined benefit plan, a formula is used that

a) requires that the benefit of gain or the risk of loss from the assets contributed to the pension
plan be borne by the employee.
b) defines the benefits that the employee will receive at retirement.
c) requires that pension expense and the cash funding amount to be the same.
d) defines the contribution the employer is to make; no promise is made concerning the ultimate
benefits to be paid out to the employees.
Answer: b
Difficulty: Easy
Learning Objective: Identify and explain what a defined benefit plan is and the related
accounting issues.
Section Reference: Defined Benefit Plans
9. The objective of accounting for defined benefit plans is to

a) calculate the actual amounts employees will receive at retirement.
b) recognize the appropriate expense and liability over the accounting periods in which the
related services are provided by the employees.
c) calculate the current service cost.
d) determine which employees’ rights have vested.
Answer: b
Difficulty: Medium
change its balance.
10. In a defined benefit plan, for the employer, the term “funding” refers to
a) being responsible for the assets of the pension plan.
b) determining the defined benefit obligation.

c) making periodic contributions to a funding agency to ensure that funds are available to meet
retirees' claims.
d) calculating the amount to report for pension expense.
Answer: c
Difficulty: Hard
change its balance.
11. Accounting problems for all pension plans may include all the following EXCEPT
a) determining the level of individual premiums.
b) reporting the status and effects of the plan in the financial statements.
c) allocating the cost of the plan to the proper periods.
d) measuring the amount of pension obligation.
Answer: a
Difficulty: Medium
change its balance.
12. In pension accounting, the actuary’s main purpose is to

a) make predictions about mortality rates and employee turnover.
b) calculate the current pension cost.
c) calculate the interest cost of the pension plan.
d) ensure the employer has established an appropriate funding pattern to meet its pension
obligations.
Answer: d
Difficulty: Medium
change its balance.
13. In Canada, employer-sponsored pension plans are

a) increasingly defined contribution.
b) increasingly defined benefit.
c) decreasingly defined contribution.
d) staying relatively the same.
Answer: a
Difficulty: Medium
change its balance.
14. Under IFRS, the defined benefit obligation for accounting purposes is
a) the present value of vested and non-vested benefits earned to the statement of financial
position date, with the benefits measured using employees’ future salary levels.
b) the present value of vested and non-vested benefits earned to the statement of financial
position date, with the benefits measured using employees’ current salary levels.
c) the present value of vested benefits only earned to the statement of financial position date,
with the benefits measured using employees’ future salary levels.
d) the present value of non-vested benefits only earned to the statement of financial position
date, with the benefits measured using employees’ future salary levels.
Answer: a
Difficulty: Hard
change its balance.
15. Which statement is INCORRECT regarding vested benefits?

a) They usually require a certain minimum number of years of service.
b) The employee is entitled to receive such benefits even if s/he is fired.
c) They are not contingent upon additional service under the plan.
d) They are lost when the employee is terminated.
Answer: d
Difficulty: Medium
change its balance.

16. The defined benefit obligation is always increased by

a) current service cost and payments to retirees.
b) current service cost and interest cost.
c) interest cost and actuarial gains.
d) current service cost and past service costs.
Answer: b
Difficulty: Medium
change its balance.
17. For defined benefit plans, the attribution period for employees is the time between
a) the hire date and the vesting date.
b) the vesting date and the date the employee becomes eligible for full benefits.
c) the hire date and the date the employee becomes eligible for full benefits.
d) the hire date and the date the employee reaches 65.
Answer: c
Difficulty: Medium
change its balance.
18. An experience gain or loss (adjustment) is

a) additional contributions made to the pension fund by the employer.
b) additional contributions made to the pension fund by the employees.
c) reduced payments made to retirees.
d) the difference between what has occurred and the previous actuarial assumptions.
Answer: d
Difficulty: Medium
change its balance.

19. All of the following are methods of measuring the pension obligation EXCEPT
a) vested benefit method.
b) accumulated benefit method.
c) total benefit method.
d) projected benefit method.
Answer: c
Difficulty: Easy
change its balance.
20. The defined benefit obligation is always decreased by

a) benefits paid to retirees.
b) past service costs.
c) benefits paid to retirees and interest costs.
d) past service costs and interest costs.
Answer: a
Difficulty: Easy
change its balance.
21. The interest cost included in the annual pension cost recorded by an employer sponsoring a
defined benefit pension plan represents the
a) difference between the expected and actual return on plan assets.
b) increase in the defined benefit obligation due to the passage of time.
c) increase in the fair value of plan assets due to the passage of time.
d) interest earned on the plan assets for the year.
Answer: b
Difficulty: Medium
change its balance.

22. Who assumes the economic risk for defined benefit pension plans?
a) actuarials
b) trustees
c) employees
d) employers
Answer: d
Difficulty: Medium
Learning Objective: Identify transactions and events that change benefit plan assets, and
calculate the balance of the plan assets.
Section Reference: Plan Assets
23. Pension plan assets include

a) contributions made by the employer and the employees in a contributory pension plan.
b) plan assets under the control of the employer.
c) only assets reported on the employer’s statement of financial position as the net defined
benefit liability/asset.
d) contribution by the employer/employees, less the actual return, plus benefits paid to retirees.
Answer: a
Difficulty: Medium
24. The return on plan assets

a) is the change in the fair value of the plan assets during the year.
b) includes interest, dividends, and gains or losses from the sale of investments.
c) is the actual rate of return times the fair value of the plan assets at the beginning of the
period.
d) does not include unrealized gains and/or losses on the assets in the plan.
Answer: b
Difficulty: Medium

25. All of the following increase the value of plan assets EXCEPT
a) opening balance of plan assets.
b) employer contributions.
c) actual returns.
d) benefits paid to retirees.
Answer: d
Difficulty: Easy
26. The difference between the defined benefit obligation and the pension assets’ fair value at
any point in time is known as the plan’s
a) return on plan assets.
b) surplus or deficit.
c) experience gain or loss.
d) actual return.
Answer: b
Difficulty: Easy
Learning Objective: Explain what a benefit plan’s surplus or deficit is, calculate it, and identify
what transactions and events change its amount.
Section Reference: Surplus or Deficit
27. When a pension plan is underfunded

a) it has more assets than liabilities.
b) it has more liabilities than assets.
c) it has higher net income.
d) it has lower net income.
Answer: b
Difficulty: Easy
28. When the plan assets of a pension plan are greater than the defined benefit obligation, the
pension plan is
a) overstated.
b) understated.
c) overfunded.
d) underfunded.
Answer: c
Difficulty: Easy
29. Under IFRS, the defined benefit obligation is adjusted to its most recent actuarial valuation,
and the adjustment flows through
a) other comprehensive income.
b) net income.
c) either other comprehensive income or net income.
d) retained earnings.
Answer: a
Difficulty: Medium
Learning Objective: Identify the components of pension expense, and account for a defined
benefit pension plan under IFRS and ASPE.
Section Reference: Defined Benefit Cost Components
30. Under IFRS, any difference between the pension expense and the payments into the fund
should be reflected in
a) a contra account to the net defined benefit liability/asset.
b) an accrued actuarial liability.
c) the net defined benefit liability/asset.
d) a note to the financial statements only.
Answer: c
Difficulty: Medium
31. Any past service costs should be included in the

a) pension expense of current and future periods.
b) pension expense of past periods.
c) pension expense of the current period.
d) plan assets.
Answer: c
Difficulty: Medium
32. Under IFRS, a net defined benefit asset is reported when

a) the defined benefit obligation exceeds the fair value of pension plan assets.
b) the fair value of pension plan assets exceeds the defined benefit obligation.
c) the pension expense for the period is the same as the contributions made to the pension plan
for the same period.
d) the vested benefits exceed the fair value of pension plan assets.
Answer: b
Difficulty: Medium
33. Under IFRS,

a) there is a general ledger account called net defined benefit liability/asset.
b) there is a general ledger account called defined benefit obligation.
c) there is a general ledger account called Pension Fund Assets.
d) Pension Expense is included in other comprehensive Income.
Answer: a
Difficulty: Medium
34. All past service costs are expensed. The rationale for doing this is that
a) they are usually immaterial.
b) they relate to non-vested services, so there is no justification for deferring their recognition to
future periods.
c) they relate to past services, so there is no justification for deferring their recognition to future
periods.
d) CRA will not allow them to be deferred.
Answer: c
Difficulty: Medium
35. An advantage of the immediate recognition approach is that

a) the Net Defined Benefit Liability/Asset account reflects the actual funded status of the
pension plan.
b) unrecognized past service costs are deferred and amortized over future periods.
c) it averages out the pension expense from year to year.
d) it does not recognize actuarial gains and losses.
Answer: a
Difficulty: Medium
36 (This looks extremely familiar). A difference between IFRS and ASPE’s recognition of the
defined benefit cost components is
a) gains and losses from remeasurement of the net defined benefit liability or asset are reported
in Net Income under ASPE.
b) gains and losses from remeasurement of the net defined benefit liability or asset are reported
in Net Income under IFRS.
c) ASPE can use the defer and amortize approach.
d) IFRS can use the defer and amortize approach.
Answer: a
Difficulty: Medium
37(This also looks extremely familiar). The items included in pension expense are
a) service cost, net interest or finance cost, actuarial gains or losses.
b) service cost, net interest or finance cost, past service costs, actuarial gains or losses.
c).service cost, net interest or finance cost, remeasurement gain or loss on plan assets, past
service costs, actuarial gains or losses.
d) service cost, remeasurement gain or loss on plan assets, actuarial gains or losses.
Answer: c
Difficulty: Medium
38. Magritte Inc. provides a defined benefit pension plan for its employees (for which the
corporation uses IFRS). At December 31, 2017, the fair value of the plan assets is less than the
defined benefit obligation. In its statement of financial position at December 31, 2017, Magritte
should report a net defined benefit liability/asset of the
a) excess of the defined benefit obligation over the fair value of the plan assets.
b) excess of the plan assets over the defined benefit obligation.
c) defined benefit obligation.
d) fair value of the plan assets.
Answer: a
Difficulty: Easy
Bloomcode: Application
39. Which of the following statements is INCORRECT?

a) Most pension plan employers report their pension assets or liabilities in the appropriate long-
term classifications.
b) An employer with two or more defined benefit plans is required to measure the benefit cost of
each plan separately.
c) IFRS specifies how the components of pension benefit costs are to be reported on the
income statement.
d) Underlying assumptions, such as how the expected return on plan assets is determined, are
required to be disclosed.
Answer: c
Difficulty: Medium
Learning Objective: Identify the types of information required to be presented and disclosed for
defined benefit plans, prepare basic schedules, and be able to read and understand such
disclosures.
Section Reference: Presentation
40. Post-employment benefits may include all of the following EXCEPT

a) dental care.
b) severance pay to laid-off employees.
c) legal and tax services.
d) tuition assistance.
Answer: b
Difficulty: Easy
Learning Objective: Account for defined benefit plans with benefits that vest or accumulate other
than pension plans.
Section Reference: Other Defined Benefit Plans
41. Regarding post-employment health-care benefits,

a) they are generally funded.
b) they are well-defined and level in dollar amount.
c) the beneficiary is the retiree, spouse, and other dependents.
d) benefits are payable monthly.
Answer: c
Difficulty: Easy
than pension plans.
42. Accrued post-employment benefit obligations are

a) recorded at their present value.
b) recorded in the same manner as pension benefit obligations.
c) not recognized in the financial statements.
d) disclosed in the notes to the financial statements only.
Answer: b
Difficulty: Easy
than pension plans.
43. How should employers recognize employee benefit plans that do NOT accumulate?
a) Recognize the liability and cost over the life of the employee.
b) Recognize the liability and cost over the length of service.
c) Recognize the liability and cost when the event occurs to obligate the company to provide the
benefit.
d) They don’t need to recognize them.
Answer: c
Difficulty: Easy
than pension plans.
44. Under IFRS for employee future benefits besides pension plans, remeasurements of the net
defined benefit
a) should be reflected in OCU.
b) should not be recorded.
c) do not need to be remeasured.
d) should be reflected in income.
Answer: d
Difficulty: Hard
than pension plans.
45. Which of the following disclosures of post-employment benefits would NOT be required?
a) the cost of post-employment benefits during the period
b) a description of the accounting and funding policies followed
c) the amount of the actuarial liability for short-term benefits such as paternity leave
d) the assumptions and rates used in calculating the benefit obligation
Answer: c
Difficulty: Easy
disclosures.
46. Which of the following pieces of disclosure information would analysts NOT focus on?
a) the name of the actuarial company that performed the calculations
b) major assumptions used in the calculation of the defined benefit obligation
c) the surplus or deficit of the plan
d) the company’s future cash requirements
Answer: a
Difficulty: Medium
disclosures.
47. Under ASPE, which of the following disclosures of post-employment benefits would NOT be
required?
a) a description of each type of plan
b) the effective date of the most recent actuarial report
c) the year-end surplus or deficit, including the fair value of the plan assets and defined benefit
obligation
d) the risks associated with the defined benefit plan
Answer: d
Difficulty: Medium
disclosures.
48. Under IFRS all of the following are reported in OCI, EXCEPT
a) remeasurement changes.
b) actuarial gains.
c) actuarial losses.
d) past service costs.
Answer: d
Difficulty: Easy
Learning Objective: Identify differences between the IFRS and ASPE accounting for pensions
and other post-employment benefits and what changes are expected in the near future.
Section Reference: A Comparison of IFRS and ASPE
49 (Know this one as well for sure). The major difference in accounting for pensions under
ASPE and IFRS is
a) ASPE allows two approaches for accounting, immediate recognition approach and the
deferral and amortization approach and IFRS only allows the immediate recognition approach.
b) IFRS requires use of an actuarial and ASPE does not for calculation pension plans.
c) ASPE includes the entire pension expense in net income and IFRS includes actuarial gains
and losses as well as remeasurements in OCI.
d) IFRS includes the entire pension expense in net income and ASPE includes actuarial gains
and losses as well as remeasurements in OCI.
Answer: c
Difficulty: Easy
MULTIPLE CHOICE—Computational (I think 20% of our MC Came from

this section… even those these questions are pretty easy, you should know
how to do them)
50. The following information pertains to Rembrandt Inc.'s pension plan for calendar 2017:
Defined benefit obligation at Jan 1/17 ........................ $96,000
Interest (discount) rate ............................................... 10%
Current service costs ................................................. $24,000
Pension benefits paid retirees .................................... $20,000
The corporation uses IFRS. If no change in actuarial estimates occurred during 2017,
Rembrandt's defined benefit obligation at December 31, 2017 would be
a) $85,600.
b) $100,000.
c) $105,600.
d) $109,600.
Answer: d
Difficulty: Medium
change its balance.
Feedback: $96,000 + $24,000 + ($96,000 × 10%) – $20,000 = $109,600
51. Presented below is information related to Peach Corporation’s defined benefit pension plan
for calendar 2017. The corporation uses IFRS.
Defined benefit obligation, Jan 1 ................................ $200,000
Fair value of plan assets, Jan 1 .................................. 180,000
Current service cost ................................................... 27,000
Contributions to plan .................................................. 25,000
Actual and expected return on plan assets ................. 9,000
Benefits paid to retirees.............................................. 40,000
The fair value of the plan assets at December 31, 2017 is
a) $187,000.
b) $174,000.
c) $165,000.
d) $149,000.
Answer: b
Difficulty: Medium

Feedback: $180,000 + $9,000 + $25,000 - $40,000 = $174,000
52. Presented below is information related to Kiwi Ltd. for calendar 2017. The corporation uses
IFRS.
Past service costs (effective Jan 1) ............................ 10,000
The fair value of the plan assets at December 31, 2017 is
a) $785,000.
b) $805,000.
c) $819,000.
d) $875,000.
Answer: a
Difficulty: Medium
Feedback: $700,000 + $56,000 + $125,000 - $96,000 = $785,000
53. Raphael Inc. provides a defined benefit plan for its employees, and reports using ASPE. The
pension plan administrator for Raphael Inc. provided the following information for the year
ended December 31, 2017
Fair value of plan assets, January 1 ........................... 760,000
Defined benefit obligation, January 1 ......................... 820,000
Employer contributions ............................................... 85,000
Actual and expected return ........................................ 12,000
The fair value of the plan assets at December 31, 2017 would be
a) $807,000.
b) $867,000.
c) $907,000.
d) $967,000.
Answer: a
Difficulty: Medium
Feedback: $760,000 + $85,000 + $12,000 - $50,000 = $807,000
54. At January 1, 2017, Van Gogh Corp.’s defined benefit pension plan, under IFRS, had a
defined benefit obligation of $100,000, while the fair value of the plan assets was $120,000.
During 2017, the plan's current service cost was $150,000; past service costs were $80,000;
Van Gogh contributed $110,000 to the plan; the actual and expected return on the plan assets
was $9,000; and benefits paid to retirees were $95,000. What is the fair value of the plan assets
at December 31, 2017?
a) $239,000
b) $205,000
c) $144,000
d) $135,000
Answer: c
Difficulty: Medium
Feedback: $120,000 + $9,000 + $110,000 - $95,000 = $144,000
55. Bateman Corp. provides a defined benefit pension plan for its employees, and uses the
IFRS. The trustee administering the plan provided the following information for the year ended
December 31, 2017:
Fair value of plan assets, Jan 1 .................................. $1,200,000
Defined benefit obligation, Jan 1 ................................ 1,270,000
Employer's contributions ........................................... 360,000
Past service cost (at Jan 1) ........................................ 30,000
Benefits paid retirees ................................................. 325,000
Actual and expected return ....................................... 60,000
The fair value of the plan assets at December 31, 2017 would be
a) $1,235,000.
b) $1,295,000.
c) $1,335,000.
d) $1,535,000.
Answer: b
Difficulty: Medium
Feedback: $1,200,000 + $60,000 + $360,000 - $325,000 = $1,295,000
56. Presented below is pension information related to Apple Inc. for the calendar year 2017. The
corporation uses the immediate recognition approach.
Interest on accrued benefit obligation ......................... 216,000
Expected and actual return on plan assets ................. 72,000
Past service costs ...................................................... 48,000
The pension expense to be reported for 2017 is
a) $432,000.
b) $480,000.
c) $576,000.
d) $648,000.
Answer: b
Difficulty: Medium
Feedback: $288,000 + $216,000 + $48,000 – $72,000 = $480,000
57. Presented below is pension information related to Banana Inc. for the calendar year 2017.
The corporation uses ASPE.
Contributions to the plan ............................................ 55,000
Actual return on plan assets ....................................... 45,000
Accrued benefit obligation (beginning of year) ............ 600,000
Fair value of plan assets (beginning of year) .............. 400,000
Interest cost on the obligation..................................... 10%
a) $110,000.
b) $ 70,000.
c) $ 65,000.
d) $ 50,000.
Answer: c
Difficulty: Medium

Feedback: $50,000 + ($600,000 × 10%) – $45,000 = $65,000
58. Presented below is pension information related to Cantaloupe Ltd. for the calendar year
2017. The corporation uses ASPE.
Interest on accrued benefit obligation ......................... 195,000
Actuarial experience loss ........................................... 45,000
a) $757,500.
b) $697,500.
c) $667,500.
d) $577,500.
Answer: c
Difficulty: Medium
Feedback: $450,000 + $195,000 + $45,000 + $82,500 – $105,000 = $667,500
59. At the end of 2017, Lime Inc. has determined the following adjusted information related to its
defined benefit pension plan
Defined benefit obligation ........................................... $1,320,000
Fair value of pension plan assets ............................... 1,220,000
The corporation uses IFRS. Assume the net defined benefit liability/asset account at January 1,
2017 was nil. If the contribution to plan assets in 2017 is $410,000, the pension expense for
2017 is
a) $100,000.
b) $310,000.
c) $410,000.
d) $510,000.
Answer: d
Difficulty: Hard
Feedback: funding minus pension expense = accrued pension asset/liab.
$410,000 - X = $1,220,000 - $1,320,000; X = $510,000
Use the following information for questions 60–61.
The following information is available for Figgy Enterprises Ltd. for calendar 2017. The
corporation uses IFRS.
Plan assets (at fair value), end of year ....................... $1,800,000 Dr
Defined benefit obligation, end of year ....................... 1,920,000 Cr
Pension expense........................................................ 360,000
Contributions for year ................................................. 324,000
60. The pension expense to be reported for 2017 is

a) $360,000.
b) $346,000.
c) $324,000.
d) $120,000.
Answer: a
Difficulty: Easy
Feedback: $360,000 (given)
61. The net defined benefit liability/asset that should be reported at December 31, 2017 is
a) $120,000 asset.
b) $120,000 liability.
c) $204,000 asset.
d) $360,000 liability.
Answer: b
Difficulty: Medium
Feedback: $1,920,000 – $1,800,000 = $120,000 liability
62. Presented below is pension information related to Mango Ltd. at December 31, 2017. The
corporation uses IFRS.
Defined benefit obligation ........................................... $3,500,000 Cr
Plan assets (at fair value) ........................................... 2,500,000 Dr

The amount to be reported as the net defined benefit liability at December 31, 2017 is
a) $1,100,000.
b) $1,000,000.
c) $900,000.
d) $700,000.
Answer: b
Difficulty: Easy
Feedback: $3,500,000 – $2,500,000 = $1,000,000
63. Presented below is pension information related to Squash Corp. for the calendar year 2017.
The corporation uses IFRS.
Current service cost ................................................... $204,000
Discount (interest) rate ............................................... 9%
Defined benefit obligation, Jan 1 ................................ $1,800,000
Past service cost (effective Jan 1) .............................. 50,000
a) $266,000.
b) $366,000.
c) $416,000.
d) $420,500.
Answer: d
Difficulty: Hard
Feedback: $204,000 + [($1,800,000 + $50,000) X 9%)] + $50,000 = $420,500
64. Presented below is pension information related to Watermelon Corp. for the calendar year
2017. The corporation uses IFRS.
Discount (interest) rate ............................................... 10%
Actual & expected return on plan assets .................... 24,000
Actuarial loss.............................................................. 28,000
a) $220,000.
b) $192,000.
c) $164,000.
d) $130,000.
Answer: b
Difficulty: Medium
Feedback: $126,000 + ($900,000 x 10%) - $24,000 = $192,000
Note: the actuarial loss is not part of pension expense, but is charged to OCI
65. Daikon Ltd. received the following information from its pension plan trustee concerning their
defined benefit pension plan for calendar 2017. The corporation uses ASPE.
Jan 1, 2014 Dec 31, 2014
Fair value of plan assets $2,100,000 $2,250,000
Accrued benefit obligation 2,400,000 2,580,000
For 2017, the current service cost is $180,000. The interest rate on the liability is 10% and the
actual rate of return on plan assets is 9%. The pension expense to be reported for 2017 is
a) $265,500.
b) $231,000.
c) $216,000.
d) $180,000.
Answer: b
Difficulty: Hard
Feedback: $180,000 + ($2,400,000 × 10%) – ($2,100,000 × 9%) = $231,000
66. Presented below is information related to Peach Corporation’s defined benefit pension plan
for calendar 2017. The corporation uses IFRS.
The balance of the defined benefit obligation at December 31, 2017 is
a) $185,000.
b) $187,000.
c) $207,000.
d) $245,000.
Answer: c
Difficulty: Medium
Feedback: $200,000 + $27,000 + ($200,000 x 10%) - $40,000 = $207,000
Use the following information for questions 67–68.
Presented below is information related to Kiwi Ltd. for calendar 2017. The corporation uses
IFRS.
Past service costs (effective Jan 1) ............................ 10,000
67. The pension expense to be reported for 2017 is

a) $140,000.
b) $109,700.
c) $108,800.
d) $ 60,000.
Answer: b
Difficulty: Medium
Feedback: $90,000 + [($720,000 + $10,000) x 9%] + $10,000 - $56,000 = $109,700
68. The balance of the defined benefit obligation at December 31, 2017 is
a) $724,000.
b) $779,700.
c) $778,800.
d) $789,700.
Answer: d
Difficulty: Medium
Feedback: $720,000 + $10,000 + $90,000 + [($720,000 + $10,000) x 9%] - $96,000 = $789,700
69. At December 31, 2017, the following information was provided by the defined benefit
pension plan administrator for Leonardo Corp.:
Fair value of plan assets ............................................ $5,000,000
Defined benefit obligation ........................................... 6,200,000
The corporation uses IFRS. What is the net defined benefit liability/asset account that should be
shown on Leonardo’s December 31, 2017 statement of financial position?
a) $1,200,000 liability
b) $1,200,000 asset
c) $6,200,000 liability
d) $5,000,000 asset
Answer: a
Difficulty: Easy
Feedback: $6,200,000 – $5,000,000 = $1,200,000 liability
70. Thomson Corp. provides a defined benefit pension plan for its employees, and uses IFRS to
account for it. The corporation's actuary has provided the following information for the year
ended December 31, 2017:
Defined benefit obligation, Dec 31 .............................. 525,000
Fair value of plan assets, Dec 31 ............................... 625,000
Interest on defined benefit obligation .......................... 24,000
Expected and actual return on plan assets ................. 82,500
a) $241,500.
b) $324,000.
c) $406,500.
d) $524,000.
Answer: a
Difficulty: Medium
Feedback: $240,000 + $24,000 – $82,500 + $60,000 = $241,500
71. Bateman Corp. provides a defined benefit pension plan for its employees, and IFRS to
account for it. The trustee administering the plan provided the following information for the year
ended December 31, 2017:
Fair value of plan assets, Jan 1 .................................. $1,200,000
Defined benefit obligation, Jan 1 ................................ 1,270,000
Employer's contributions ........................................... 360,000
Past service cost (at Jan 1) ........................................ 30,000
Benefits paid retirees ................................................. 325,000
Actual and expected return ....................................... 60,000
a) $270,000.
b) $366,000.
c) $374,000.
d) $434,000.
Answer: c
Difficulty: Medium
Feedback: $300,000 + 30,000 + [($1,270,000 + $30,000) x 8%] – $60,000 = $374,000
Use the following information for questions *72–*73.
Maggie Moo, age 40, begins employment with Farm Corporation on January 1, 2017 at a
starting salary of $40,000. It is expected that Maggie will work for the company for 25 years,
retiring on December 31, 2041, when Maggie is 65 years old. It is expected that her salary at
retirement will be $140,000. Further assume that mortality tables indicate the life expectancy of
someone age 65 in 2041 is 12 years.
Farm Corporation sponsors a defined benefit pension plan with the following formula
Annual pension benefit on retirement = 3% of salary for each year of service, or 3% final salary
x years of service.
Assume a discount rate of 6%
*72. Determine the current service cost for Maggie Moo at December 31, 2017.
a) $4,200
b) $8,212.66
c) $8,696.69
d. $35,212.12
Answer: c
Difficulty: Hard
Learning Objective: Explain and apply basic calculations to determine current service cost, the
defined benefit obligation, and past service cost for a one-person defined benefit pension plan.
Section Reference: Example of a One-Person Plan (Appendix 19A)
Feedback: 3% x 140,000 x 1 year = $4,200 per year of retirement, PV of $4,200 annuity
(n=12, i=6) at December 31, 2041 = $4,200 x 8.38384 = $35,212.13, PV of
amount of $35,212.13(n=24, i=6%) at December 31, 2017 = $35,212.13 x.24698 = $8,696.69
*73. Determine the Defined Benefit Obligation for Maggie Moo at December 31, 2018.
a) $8,400
b) $17,416.01
c) $18,434.87
d) $70,415.86
Answer: c
Difficulty: Hard
Feedback: PV of $8,400 annuity (n=12, i=6) at Dec 31, 2018 = 8,400 x 8.38284=$70,415.86
PV of $70,415.86 (n=23, i=6%) at Dec 31, 2018 = 70,415.86 x 0.26180 = $18,434.87
EXERCISES
Ex.19-74 Pension terminology

Briefly explain the following terms
a) Pension plan
b) Contributory plans
c) Non-contributory plans
Solution 19-74
a) A pension plan is an arrangement in which an employer provides benefits (payments) to
employees after they retire, for services that the employees provided while they were
working.
b) In contributory plans, the employees pay part of the cost of the stated benefits or voluntarily
make payments to increase their benefits.
c) In non-contributory plans, the employer bears the entire cost.
Difficulty: Easy
Ex. 19-75 Examples of employee post-employment benefits

There are a variety of post-employment benefits that are earned by employees and that are
expected to be provided to them on a long-term basis. List some examples of employee post-
employment benefits.
Solution 19-75
Examples of post-employment benefits include
 Post-retirement plans such as pensions and plans that provide health care or life insurance
benefits after an employee’s retirement.
 Post-employment plans with benefits that are provided after employment but before
retirement. These include long-term disability income benefits, long-term severance
benefits, and continuation of benefits such as health care and life insurance.
 Plans covering accumulating and vested compensated absences. This type of benefit
includes payments made while an employee is absent from work. It also includes
unrestricted sabbatical leaves and accumulated sick days that vest or are taken as paid
vacation.
Difficulty: Easy
Ex. 19-76 Defined contribution plan

What is a defined contribution plan?
Solution 19-76
A defined benefit plan is a post-employment benefit plan that specifies how the entity’s
contributions or payments into the plan are determined, rather than identifying what benefits will
be received by the employee or the method of determining those benefits.
Difficulty: Medium
Ex. 19-77 Defined benefit assets and liabilities

When are liabilities and assets reported in the employer’s financial statements for a defined
benefit plan?
Solution 19-77
A liability is only reported on the employer’s statement of financial position if the required
contribution has not been made in full for a defined benefit plan. An asset is only reported if the
employer has contributed more than the required amount to be contributed for a defined benefit
plan.
Difficulty: Medium
Ex. 19-78 Actuary’s role

What is an actuary’s chief purpose in pension accounting and what actuarial assumptions do
they make?
Solution 19-78
An actuary’s chief purpose in pension accounting is to ensure that the company has established
an appropriate funding pattern to meet its pension obligations.
Actuaries make predictions called actuarial assumptions about mortality rates, employee
turnover, interest and earnings rates, early retirement frequency, future salaries, and any other
factors that need to be considered for pension plans.
Difficulty: Medium
accounting issues.
Ex. 19-79 Defined benefit vesting

Define the term vesting and explain how defined benefit plans vest.
Solution 19-79
Vesting means that an employee keeps the rights to the benefit even if the employee no longer
works for the entity. Typically defined benefits vest with the employee based on the employee’s
length of service. Normally the benefits will vest after an employee has worked a specified
number of years and the amount of the benefit typically increases with the length of service.
Difficulty: Medium
accounting issues.
Ex. 19-80 Pension accounting terminology

Briefly explain the following terms
a) Service cost
b) Interest cost
c) Past service costs
d) Vested benefits
Solution 19-80
a) The (current) service cost component of pension expense is the cost of the benefits to be
provided in future in exchange for services provided in the current period.
b) The interest cost component of pension expense is the interest for the period of the defined
(accrued) benefit obligation outstanding during the period. To simplify the calculation, the
amount of interest is calculated by applying a single rate to the beginning balance of the
obligation.
c) When a defined benefit plan is initiated or amended, credit that is given to employees for
services provided before the date of initiation or amendment results in past service costs. If
there is a reduction in the benefit plan, there is a decrease in in the defined (accrued)
benefit obligation. The amount of the past service costs is calculated by an actuary, and is
added/deducted to the beginning balance of the obligation for calculating the interest cost
for the year.
d) Vested benefits are those the employee is entitled to receive even if s/he provides no
additional services under the plan, e.g. if his/her employment is terminated.
Difficulty: Medium
change its balance.
Ex. 19-81 Pension asset terminology

Discuss the following ideas related to pension assets:
a) Actual return on plan assets
b) Expected return on plan assets
c) Unexpected gains and losses on plan assets
Solution 19-81
a) The actual return earned on plan assets is the income generated on the assets being held
by the trustee, less the cost of administering the fund. This can vary considerably from year
to year.
b) The expected return on plan assets is the long-term rate of return (calculated by the
actuary) multiplied by the fair value of the assets at the beginning of the period. A long-term
rate is used to smooth out short-term fluctuations in interest rates, and is usually the rate for
high-quality corporate bonds. Under IFRS, the same rate is used for interest on the defined
benefit obligation and the plan assets.
c) An unexpected asset gain occurs when the actual return on plan assets is greater than the
expected return on plan assets and an unexpected loss occurs when the actual return is
less than the expected return.
Difficulty: Medium
change its balance.
Ex. 19-82 Pension plan calculations

The following information relates to the defined benefit pension plan for Strawberry Dale Ltd.:
Dec 31/16 Dec 31/17
Defined benefit obligation $2,250,000 $3,000,000
Fair value of plan assets 2,300,000 2,640,000
Interest rate 8% 8%
Expected rate of return 7% 6%
In 2017, the corporation contributed $390,000 to the plan, and the trustee paid $210,000 in
benefits to retirees.
Instructions
For the year ended December 31, 2017
a) Calculate the interest on the obligation.
b) Calculate the actual return on plan assets.
c) Calculate the unexpected gain or loss (if any).
Solution 19-82
a) $2,250,000 × 8% = $180,000
b) Fair value of plan assets Dec 31/17 ........................... $2,640,000

Fair value of plan assets Dec 31/16 ........................... (2,300,000)
340,000
Contributions .............................................................. (390,000)
Benefits paid .............................................................. 210,000
Actual return on plan assets ....................................... $160,000
c) Actual return (see b)) ................................................. $160,000

Expected return ($2,300,000 × 6%) ............................ (138,000)
Unexpected gain ........................................................ $22,000
Difficulty: Medium
change its balance.
Ex. 19-83 Pension plan calculations and journal entries

On January 1, 2017, Prune Ltd. reported the following balances relating to their defined benefit
pension plan:
Defined benefit obligation ........................................... $3,200,000
Fair value of plan assets ............................................ 3,200,000
Other data related to the pension plan for 2017 are:

Contributions to the plan ............................................ 204,000
Benefits paid .............................................................. 200,000
Interest (discount) rate .............................................. 9%
Instructions
a) Calculate the defined benefit obligation at December 31, 2017.
b) Calculate the fair value of plan assets at December 31, 2017.
c) Calculate pension expense for 2017.
d) Prepare the journal entries to record the pension expense and the contributions for 2017.
Solution 19-83
a) Defined benefit obligation, Jan 1 ................................ $3,200,000
Interest cost (9% × $3,200,000) ................................. 288,000
Benefits paid .............................................................. (200,000)
Defined benefit obligation, Dec 31 .............................. $3,428,000
b) Fair value of plan assets, Jan 1..................................... $3,200,000

Actual return............................................................... 192,000
Contributions .............................................................. 204,000

Benefits paid .............................................................. (200,000)
Fair value of plan assets, Dec 31 ............................... $3,396,000
c) Current service cost ................................................... $140,000

Interest cost (9% × $3,200,000) ................................. 288,000
Actual return on plan assets ....................................... (192,000)
Pension expense........................................................ $236,000
d) Pension Expense .......................................................................... 236,000

Net Defined Benefit Liability/Asset .......................................... 236,000
Net Defined Liability/Asset ............................................................ 204,000

Cash....................................................................................... 204,000
Difficulty: Medium
change its balance.
Ex. 19-84 Methods of measuring pension obligations

Discuss the different methods of measuring the pension obligation and identify which method is
used for IFRS and ASPE.
Solution 19-84
Actuaries calculate the vested benefit obligation using vested benefits only, at current salary
levels, under the vested benefit method.
The accumulated benefit method is based on both the vested and non-vested benefits and
calculated on all years of employees’ service using the current salary levels.
The projected benefit method calculates the deferred compensation using both vested and non-
vested service, and incorporates future salaries projected to be earned over the period to
retirement.
IFRS and ASPE have both adopted the projected benefit method to calculate the defined benefit
obligation (DBO).
Difficulty: Medium
change its balance.
Ex. 19-85 Defined benefit obligation continuity schedule

Provide the defined benefit obligation (DBO) continuity schedule.
Solution 19-85
Defined benefit obligation (DBO), beginning of the period
+ Current service cost
+ Interest cost
- Benefits paid to retirees
+/- Past service costs of plan amendments during period
+/- Actuarial gains (-) or losses (+) during the period
= Defined benefit obligation (DBO), end of the period
Difficulty: Medium
change its balance.
Ex. 19-86 Plan assets continuity schedule

Provide the plan assets continuity schedule.
Solution 19-86
Plan assets, fair value at beginning of period
+Contributions from employer company, and employees if applicable
+/- Actual return
- Benefits paid to retirees
= Plan assets, fair value at end of period
Difficulty: Medium
Ex. 19-87 Return on plan assets

How is the return on plan assets determined?
Solution 19-87
The return on plan assets can be highly variable from one year to the next, so actuaries ignore
short-term fluctuations when they develop a funding pattern to accumulate assets to pay
benefits in the future. So they calculate an expected long-term rate of return and apply it to the
fair value of the funded assets to arrive at an expected return on plan assets.
Difficulty: Medium
Ex. 19-88 Calculate surplus/deficit

Star Company calculated its defined benefit obligation at December 31, 2017 to be $1,975,000.
The fair value of the plan assets on the same date was $1,545,000.
Instructions
Calculate Star Company’s plan surplus or deficit and explain what the surplus or deficit means.
Solution 19-88
DBO $1,975,000
Less Fair value of the plan assets (1,545,000)
DBO > Plan asset $430,000 underfunded
Star Company’s plan is in a deficit, which means its liability is greater than its assets so the plan
is underfunded. If Star Company’s financial performance is poor, there could be an issue with
having enough funds to cover the future pension costs.
Difficulty: Medium
Ex. 19-89 Calculate surplus or deficit

Sunshine Company calculated its defined benefit obligation at December 31, 2017 to be
$2,560,000. The fair value of the plan assets on the same date was $2,685,000.
Instructions
Calculate Sunshine Company’s plan surplus or deficit and explain what the surplus or deficit
means.
Solution 19-89
DBO $2,560,000
Less Fair value of the plan assets (2,685,000)
DBO < Plan asset $125,000 overfunded
Sunshine Company’s plan is in a surplus, which means its assets are greater than its liability so
the plan is overfunded. Sunshine Company can fully cover its pension obligation.
Difficulty: Medium
Ex. 19-90 Components of pension expense

Explain the five components of pension expense under IFRS
Solution 19-90
Current service costs – benefits earned by the employees during the current period. This is
included in the pension expense on the Statement of Comprehensive Income.
Net interest (or finance) cost – the discount rate used for the interest cost on the DBO and for
the interest assumed to be earned on the plan assets. This is included in the pension expense
on the Statement of Comprehensive Income.
Remeasurement of the return on plan assets other than net interest costs on the DBO are
recognized in OCI.
Past service costs, curtailments, and settlements – plan amendments instantly change the
amount of the employer’s obligation, and the total cost (or benefit) of the amendment is
recognized immediately in the pension expense on the Statement of Comprehensive Income.
Actuarial gains and losses – result from items such as changes in actuarial assumptions and
experience adjustments that increase or decrease the present value of the DBO. Actuarial gains
and losses are recognized immediately into OCI.
Difficulty: Medium
Ex. 19-91 Measuring and recording pension expense

Pumpkin Ltd. received the following information from its pension plan trustee concerning their
defined benefit pension plan for the year ended December 31, 2017
January 1, 2017 December 31, 2017
Defined benefit obligation $3,500,000 $3,990,000
Fair value of plan assets 1,750,000 2,240,000
For 2017, the service cost is $210,000 and past service cost (effective Jan 1) is $100,000.
During 2017, Pumpkin contributed $595,000 to the plan. The actual and expected return on plan
assets is 8%. Pumpkin uses IFRS.
Instructions
a) Calculate the pension expense to be reported in 2017.
b) Prepare the journal entries to record the pension expense and the employer’s contribution
for 2017.
Solution 19-91
a) Current service cost ...................................................................... $210,000
Interest on DBO ($3,500,000 + $100,000) × 8%) .......................... 288,000
Actual/Expected return on plan assets ($1,750,000 × 8%) ............ (140,000)
Past service costs ......................................................................... 100,000
$458,000
b) Pension Expense .......................................................................... 458,000

Net Defined Benefit Liability/Asset ................................................ 595,000

Cash....................................................................................... 595,000
Difficulty: Hard

The following information relates to the defined benefit pension plan for Huckleberry Ltd. for
2017. The corporation uses IFRS.
Contributions .............................................................. 250,000
Interest rate for obligation ........................................... 10%
Expected & actual return on plan assets .................... 9%
Defined benefit obligation, Jan 1 ................................ 240,000
Actuarial gain ............................................................. 24,000
Instructions
a) Calculate the pension expense to be reported for 2017.
b) Prepare the journal entries to record pension expense and the employer's contributions for
2017.
Solution 19-92
a) Current service cost ................................................... $260,000
Interest on defined benefit obligation ($240,000 × 10%) 24,000
Expected return on plan assets ($180,000 × 9%) ....... (16,200)
Pension expense—2014 ............................................ $267,800
Note the actuarial gain is not part of pension expense, but would be booked through OCI.


Cash....................................................................................... 250,000
Difficulty: Hard

The following information relates to the defined benefit pension plan for Strawberry Ltd. for
2017. The corporation uses ASPE.
Contributions .............................................................. 321,000
Actuarial loss.............................................................. 10,000
Instructions
2017.
Solution 19-93
Actuarial loss ................................................................... 10,000
Pension expense—2014 ............................................ $373,030


Cash....................................................................................... 321,000
Difficulty: Hard

The following information relates to the defined benefit pension plan for Orange Ltd. for 2017.
Contributions .............................................................. 495,000
Past Service Costs – amendment to plan ................... 100,000
Actuarial loss.............................................................. 15,000
Instructions

2017.
Solution 19-94
Past service costs ..................................................... 100,000
Actuarial loss ................................................................... 20,000
Pension expense—2014 ............................................ $726,200


Cash....................................................................................... 495,000
Difficulty: Hard
Ex. 19-95 Difference between pensions and other post-employment health-care benefits
Discuss the differences between pensions and other post-employment health-care benefits in
terms of funding, benefits, beneficiary, benefits payable and predictability.
Solution 19-95
Item Pensions Health-Care Benefits
Funding Generally funded Generally not funded
Benefit Well-defined and level dollar Generally uncapped and
amount great variability
Beneficiary Retiree (maybe some benefit Retiree, spouse, and other
to surviving spouse) dependants
Benefit payable Monthly As needed and used
Predictability Variables are reasonably Utilization difficult to predict;
predictable level of cost varies
geographically and fluctuates
over time
Difficulty: Medium
than pension plans.
Ex. 19-96 Comparison of IFRS and ASPE

How are non-pension defined benefits plans that vest or accumulate accounted for under ASPE
and under IFRS?
Solution 19-96
Under ASPE any non-pension defined benefit plans that vest or accumulate are accounted for
in the same way as defined benefit pension plans.
Under IFRS, short-term employee benefits are generally recognized (without discounting) at the
amount expected to be paid in exchange for the services provided. Other long-term benefits
require the same recognition and measurement as for pension plan except all changes in
liabilities relating to these benefits should be reflected in income including remeasurement.
IFRS requires the cost of the benefits to be recognized at the earlier of when the company can
no longer withdraw an offer of employment and when it recognizes the related restructuring
costs.
Difficulty: Medium
than pension plans.
Ex. for 19-97 Disclosure requirements

What disclosure requirements are necessary for pension under ASPE? What disclosure
requirements are necessary for pensions under IFRS?
Solution 19-97
Disclosure requirements for ASPE
1. A description of each type of plan and any major changes in the terms of the plan during
the year.
2. The effective date of the most recent actuarial valuation for funding purposes.
3. The year-end surplus or deficit, including the fair value of the plan assets and defined
benefit obligation.
4. An explanation of any difference between the amount reported on the balance sheet and
the plan’s surplus or deficit.
Disclosure requirements for IFRS

1. The characteristics of the defined benefit plans and risk associated with them;
2. The amounts in the statements arising from the plans; and
3. How the defined benefit plans help them assess the amounts, timing, and likelihood of the
cash flows that are associated with future benefits (IFRS 19.125).
In addition to a description of each defined benefit plan, IFRS also requires:

1. Reconciliations of opening to closing balances of the present value of the net defined
benefit liability/asset, plan assets, and the present value of the DBO.
2. Amounts included in the periodic net income, the amount included in expenses, such as
current service cost, interest expense, and return on plan assets, along with amounts
recognized in OCI such as actuarial gains and losses from changes in assumptions.
3. Sensitivity information for each significant actuarial assumptions, including the impact on
the DBO and changes from the previous period in methods and assumptions used in the
sensitivity analysis.
Difficulty: Medium
disclosures.
Ex. 19-98 Disclosure analysis

Given there is a significant amount of information included in the notes to the financial
statements on pensions, what should an analyst focus on and why?
Solution 19-98
The most significant elements for review in the notes to the financial statements are the major
assumptions that underlie the calculations, the surplus or deficit of the plan and the company’s
future cash requirements.
If the major assumptions change, this can significantly change the amounts within the defined
benefit obligation and the pension expense. For example, a one percent point difference in the
discount rate could have a 10% to 20% effect on the discounted value. The rate used is
disclosed so users can assess for reasonableness and compare to rates used by other
companies.
The cash flow related to pensions is important as it is often significantly different from the
pension cost recognized on the income statement and analyst often try to determine the
company’s future cash commitments.
Difficulty: Medium
disclosures.
Ex. 19-99 Differences between ASPE and IFRS

Discuss the differences in recognition of defined benefit plans with benefits that vest or
accumulate under ASPE and IFRS
Solution 19-99
ASPE – only one approach is permitted; the immediate recognition approach with pension
expense being recorded via net income.
IFRS – only one approach is permitted; with current and past service cost, and the net interest
on the net employee benefit liability or asset being record in net income (and with gains and
losses from remeasurements being recorded in OCI).
Difficulty: Medium
Ex. 19-100 Differences between ASPE and IFRS

Discuss the difference in the measurement of the discount rate under ASPE and IFRS.
Solution 19-100
ASPE’s current rate can either be the current yield on debt instruments (such as high-quality
corporate bonds) or a current settlement rate. The same discount rate is used for plan assets
and the DBO.
IFRS’ current rate can only be the current yield on high-quality debt instruments such as high-
quality corporate bonds. The same discount rate is used for plan assets and the DBO.
Difficulty: Medium
*Ex. 19-101 Calculating pension components

Describe how each of the following is calculated:
Current service cost
Defined benefit obligation
Past service cost
*Solution 19-101
The current service cost is a calculation of the present value of the benefits earned by
employees that is attributable to the current period. The defined benefit obligation is the present
value of the accumulated benefits earned to a point in time, according to the pension formula
and using projected salaries. Past service cost is the present value of the additional benefits
granted to employees in the case of a plan amendment.
Difficulty: Hard
*Ex. 19-102 Calculate current service costs

Joe Smith, age 45, begins employment with Square Corporation on January 1, 2017 at a
starting salary of $45,000. It is expected that Joe will work for the company for 20 years, retiring
on December 31, 2036, when Joe is 65 years old. It is expected that his salary at retirement will
be $120,000. Further assume that mortality tables indicate the life expectancy of someone age
65 in 2036 is 12 years.
Square Corporation sponsors a defined benefit pension plan with the following formula
Annual pension benefit on retirement = 2% of salary for each year of service, or 2% final salary
x years of service.
Assume a discount rate of 6%
Instructions
Determine the current service cost for Joe Smith at December 31, 2016.
*Solution 19-102
Annual pension benefit on retirement = 2% x 120,000 x 1 year = $2,400 per year of retirement
PV of $2,400 annuity (n=12, i=6) at December 31, 2036 = $2,400 x 8.38384 = $20,121.22
(Table A-4)
PV of amount of $20,121.22 (n=19, i=6%) at December 31, 2017 =

$20,121,22 x 0.33051 = $6,650.26
(Table A-2)
The current service cost for Joe Smith is $6,650.26.
Difficulty: Hard
PROBLEMS
Pr. 19-103 Measuring and recording pension expense

Presented below is information related to the defined benefit pension plan of Swiss Chard Ltd.
for the year 2017. The corporation uses IFRS.
Past service cost (as of Jan 1) ................................... 25,000
Actuarial loss.............................................................. 14,900
Remeasurement loss on plan assets.......................... 11,500
Payments to retirees .................................................. 250,000
Instructions
a) Calculate the pension expense to be reported on the income statement for 2017.
b) Calculate the amount to be shown as OCI for 2017.
c) Calculate the fair value of the plan assets at December 31, 2017.
d) Prepare the journal entries to reflect the accounting for the company's pension plan for the
year ending December 31, 2017.
Solution 19-103
a) Current service cost ............................................................. $300,000
Interest on DBO [(10% × ($375,000 + $25,000)] .................. 40,000
Expected & actual return on plan assets (9% × $350,000) ... (31,500)
Past service cost .................................................................. 25,000
Pension expense.................................................................. $333,500
b) Actuarial loss........................................................................ $14,900

Remeasurement loss on plan assets.................................... 11,500
Amount to be shown as OCI (Dr) ......................................... $26,400
c) Fair value of plan assets, Jan 1 ............................................ $350,000

Expected & actual return on plan assets ............................. 31,500
Remeasurement loss on plan assets.................................... (11,500)
Contributions to plan ............................................................ 290,000
Payments to retirees ............................................................ (250,000)
Fair value of plan assets, Dec 31 ......................................... $410,000
d) Pension Expense .......................................................................... 333,500

Remeasurement Loss (OCI) ......................................................... 26,400


Cash....................................................................................... 290,000
Difficulty: Medium
change its balance.
Pr. 19-104Calculating pension expense and pension plan surplus or deficit

Fernando’s Furniture Inc. sponsors a defined benefit pension plan for its employees. The plan’s
trustee reports the following information for calendar 2017:
Actual & expected return on plan assets .................... 21,000
Contributions .............................................................. 70,000
Past service costs (as of Jan 1).................................. 10,000
Instructions
a) Calculate the amount of pension expense for 2017, and prepare the required adjusting
journal entries.
b) Calculate the surplus or deficit of the plan on December 31, 2017.
Solution 19-104
a) Pension expense for 2017
Current service cost .......................................................... $ 80,000
Interest on DBO [(10% x ($240,000 + $10,000)] ............... 25,000
Actual & expected return on plan assets ........................... (21,000)
Past service cost ............................................................... 10,000
Pension expense .............................................................. $ 94,000
Pension Expense....................................... ........................................... 94,000

Net Defined Benefit Liability/Asset…….................................... 94,000
Net Defined Benefit Liability/Asset.................................... .................... 70,000

Cash......................................................................... ............... 70,000
b) Funded Status at December 31, 2017
Defined Benefit Obligation (1) .................................... $ (235,000)

Plan assets (2) ........................................................... 151,000
Underfunded .............................................................. $ (84,000)
(1) Defined Benefit Obligation
Beginning balance...................................................... $240,000

Service costs.............................................................. 80,000
Interest costs.............................................................. 25,000
Past service cost ........................................................ 10,000
Payments to retirees .................................................. (120,000)
Ending balance .......................................................... $235,000
(2) Plan assets
Beginning balance...................................................... $180,000

Actual return............................................................... 21,000
Contributions .............................................................. 70,000
Payments to retirees .................................................. (120,000)
Ending balance .......................................................... $151,000
Difficulty: Medium
change its balance.
Pr. 19-105 Preparation of a pension worksheet and pension entries

The accountant for Camberwell Ltd. has developed the following information regarding the
company's defined benefit pension plan for calendar 2017:
Service cost ............................................................... $600,000
Contributions .............................................................. 1,080,000
The corporation uses the immediate recognition approach under ASPE.
Instructions
a) Using the above information, complete the pension work sheet below for 2017. Indicate
credit entries by parentheses, e.g. (72,000).
b) Prepare the journal entries to reflect the accounting for the company's pension plan for the
year ended December 31, 2017.
CAMBERWELL LTD.
Pension Work Sheet
for the year ended December 31, 2017
General Journal Entries Memo Entries

——————————————————————————————————————————
Annual Net Defined Defined
Pension Benefit Benefit Plan
Expense Cash Asset/Liab Obligation Assets
——————————————————————————————————————————
Bal. Dec. 31, 2016 (1,200,000) (4,500,000) 3,300,000
Service cost
Interest cost
Actual return
Contributions
Benefits paid
Journal entry for 2017______ ______ ______ ______ ______
Bal. Dec. 31, 2017 ______ ______ ______ ______ ______
Solution 19-105
a)
CAMBERWELL LTD.
Pension Work Sheet
for the year ended December 31, 2017
(immediate recognition approach)
General Journal Entries Memo Entries

——————————————————————————————————————————
Annual Net Defined Defined
Pension Benefit Benefit Plan
Expense Cash Asset/Liab Obligation Assets
——————————————————————————————————————————
Bal., Dec. 31, 2016 (1,200,000) (4,500,000) 3,300,000
Service cost 600,000 (600,000)
Interest cost (1) 450,000 (450,000)
Actual return (315,000) 315,000
Contributions (1,080,000) 1,080,000
Benefits paid _______ 72,000 (72,000)
Expense entry 735,000 (735,000)
Contribution entry (1,080,000) 1,080,000
Bal., Dec. 31, 2017 (855,000) (5,478,000) 4,623,000
(1) $4,500,000 × 10% = $450,000

Net Defined Benefit Liability/Asset ................................................ 1,080,000
Cash....................................................................................... 1,080,000
Difficulty: Medium
LEGAL NOTICE
Copyright © 2016 by John Wiley & Sons Canada, Ltd. or related companies. All rights
reserved.
The data contained in these files are protected by copyright. This manual is furnished
under licence and may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a retrieval
system, modified, made available on a network, used to create derivative works, or
transmitted in any form or by any means, electronic, mechanical, photocopying,
recording, scanning, or otherwise without the prior written permission of John Wiley &
Sons Canada, Ltd.

TB 19

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

TB 19

Încărcat de

Drepturi de autor:

Formate disponibile

CHAPTER 19

PENSIONS AND OTHER

1. Understand the importance of pensions from a business perspective. A pension plan,

MULTIPLE CHOICE—Conceptual (cont’d)

1. Employee future benefits do NOT include

3. Categories of employee future benefit plans include

5. In a defined contribution plan, a formula is used that

6. The obligation for a defined contribution plan is calculated by

7. For ASPE and IFRS, the past service costs are

b) deferred and amortized over the life of the pension.

8. In a defined benefit plan, a formula is used that

9. The objective of accounting for defined benefit plans is to

b) determining the defined benefit obligation.

12. In pension accounting, the actuary’s main purpose is to

13. In Canada, employer-sponsored pension plans are

15. Which statement is INCORRECT regarding vested benefits?

CPA: Financial Reporting

16. The defined benefit obligation is always increased by

18. An experience gain or loss (adjustment) is

CPA: Financial Reporting

20. The defined benefit obligation is always decreased by

Section Reference: The Employer’s Obligation

23. Pension plan assets include

24. The return on plan assets

CPA: Financial Reporting

27. When a pension plan is underfunded

31. Any past service costs should be included in the

32. Under IFRS, a net defined benefit asset is reported when

33. Under IFRS,

35. An advantage of the immediate recognition approach is that

39. Which of the following statements is INCORRECT?

40. Post-employment benefits may include all of the following EXCEPT

41. Regarding post-employment health-care benefits,

42. Accrued post-employment benefit obligations are

MULTIPLE CHOICE—Computational (I think 20% of our MC Came from

calculate the balance of the plan assets.

Section Reference: Defined Benefit Cost Components

$410,000 - X = $1,220,000 - $1,320,000; X = $510,000

Use the following information for questions 60–61.

60. The pension expense to be reported for 2017 is

Past service costs ...................................................... 100,000

Use the following information for questions 67–68.

67. The pension expense to be reported for 2017 is

Use the following information for questions *72–*73.

Assume a discount rate of 6%

Ex.19-74 Pension terminology

c) In non-contributory plans, the employer bears the entire cost.

Ex. 19-75 Examples of employee post-employment benefits

Ex. 19-76 Defined contribution plan

Ex. 19-77 Defined benefit assets and liabilities

Ex. 19-78 Actuary’s role

Ex. 19-79 Defined benefit vesting

Ex. 19-80 Pension accounting terminology

Ex. 19-81 Pension asset terminology

Ex. 19-82 Pension plan calculations

b) Fair value of plan assets Dec 31/17 ........................... $2,640,000

c) Actual return (see b)) ................................................. $160,000

Ex. 19-83 Pension plan calculations and journal entries

Other data related to the pension plan for 2017 are:

b) Fair value of plan assets, Jan 1..................................... $3,200,000

Contributions .............................................................. 204,000

c) Current service cost ................................................... $140,000

d) Pension Expense .......................................................................... 236,000

Use the following information for questions 72–73.