Test I.

CASE 1. (20 points)

1. (8 points)
a. A defined contribution plan is one where the value of the retirement benefits paid out (i.e. pensions)
depends on the value of the plan, which is itself dependent on the value of contributions made. The
party who makes contributions and receives benefits bears the risk here, since if the value of the plan
falls then so do the benefits paid out. In a defined benefit plan, by contrast, the value of retirement
benefits paid out is defined in advance, and is not affected by the value of the plan. The risk here is
with the plan operator because if the plan does not have sufficient funds to pay out the defined
benefits then these must be made up.

b. Payments into defined contribution plans are expenses in the year of employment, and are
accounted for in the same way as e.g. salaries. Defined benefit plans require an entity to set up a
separate plan, to which it will usually have a liability in its financial statements. Employees'
contributions are paid into the plan, and therefore reduce this liability. It is up to the entity to ensure
that the plan has sufficient assets to be able to pay its future benefits.

c. Remeasurements (actuarial gains and losses) must be recognized immediately within other
comprehensive income. This represents a change from the previous treatment, which allowed a
choice of methods for recognition of remeasurements.

2. (12 points)
Statement of financial position:
NDBL, Beginning Balance (35,000,000 – 30,000,000) P5,000,000
NDBL, Ending Balance (41,400,000 – 32,700,000) 8,700,000

Statement of comprehensive income:

Benefit expense - PL P4,300,000
Defined benefit cost – OCI (debit) 2,600,000

PV of DBO:
Beginning balance P35,000,000
Current service cost 4,000,000
Interest cost (35,000,000 x 6%) 2,100,000
Actuarial loss 2,300,000
Benefits paid (2,000,000)
Ending balance P41,400,000

FVPA:
Beginning balance P30,000,000
Return on plan assets 1,500,000
Contributions made 3,200,000
Benefits paid (2,000,000)
Ending balance P32,700,000

Defined Benefit Cost:

Current service cost P4,000,000
Interest cost 2,100,000
Interest income – FVPA (30,000,000 x 6%) (1,800,000)
Actuarial loss 2,300,000
ROPA Difference – debit 300,000
Total P6,900,000
CASE 2. (16 points)
1. (10 points)
a. Interest cost – PVDBO (1,250,000 x 6%) P75,000
Interest income – FVPA (1,100,000 x 6%) (66,000)
Net interest P9,000

b. FVPA, beginning P1,100,000

Contributions made 490,000
ROPA (squeeze) 100,000
Benefits paid (190,000)
FVPA, ending 1,500,000

c. PVDBO, beginning 1,250,000

Current service cost 360,000
Interest cost 75,000
Benefits paid (190,000)
Actuarial losses (squeeze) 58,600
PVDBO, ending P1,553,600

d. ROPA Difference – credit (100,000 – 66,000) P(34,000)

Actuarial losses 58,600
Remeasurements – OCI – debit P24,600

e. Current service cost P360,000

Interest cost 75,000
Interest income (66,000)
Defined benefit cost – PL P369,000

2. (6 points)
Statement of comprehensive income:
In profit or loss P369,000
In other comprehensive income 24,600

Statement of financial position:

Net defined benefit liability 53,600

CASE 3. (16 points)

1. (3 points)
FVPA, 1/1/16 P3,600,000
PVDBO, 1/1/16 3,200,000
Surplus, 1/1/16 400,000
Asset ceiling, 1/1/16 100,000
NDBA, 1/1/16 P100,000

2. (3 points)
FVPA, 1/1/16 P3,600,000
ROPA 480,000
Contributions made 250,000
Benefits paid (150,000)
FVPA, 12/31/16 P4,180,000
 PVDBO, 1/1/16 P3,200,000
Current service cost 800,000
Past service cost 750,000
Actuarial gain (320,000)
Interest cost (3,200,000 x 8%) 256,000
Benefits paid (150,000)
PVDBO, 12/31/16 P4,536,000

PVDBO, 12/31/16 P4,536,000

FVPA, 12/31/16 4,180,000
NDBL, 12/31/16 P356,000

3. (3 points)
Current service cost P800,000
Past service cost 750,000
Interest cost 256,000
Interest income – FVPA (3,600,000 x 8%) (288,000)
Interest on ACE (300,000 x 8%) 24,000
Defined benefit cost – PL P1,542,000

4. (3 points)
Actuarial gain P320,000
ROPA difference (480,000 – 288,000) 192,000
ACE difference 324,000
Defined benefit cost – OCI – credit P836,000

5. (4 points)
NDBA/L 250,000
Cash 250,000

Benefits expense – PL 1,542,000

Defined benefit cost – OCI 836,000
NDBA/L 706,000

CASE 4. (16 points)

1. (3 points)
FVPA, 1/1/16 P3,500,000
PVDBO, 1/1/16 2,750,000
Surplus, 1/1/16 750,000
Asset ceiling, 1/1/16 500,000
NDBA, 1/1/16 P500,000

2. (3 points)
PVDBO, 1/1/16 P2,750,000
Current service cost 1,200,000
Past service cost 750,000
Actuarial loss 300,000
Interest cost (2,750,000 x 10%) 275,000
Benefits paid (525,000)
PVDBO, 12/31/16 P4,750,000
 FVPA, 1/1/16 P3,500,000
ROPA 750,000
Contributions made 2,275,000
Benefits paid (525,000)
FVPA, 12/31/16 P6,000,000

PVDBO, 12/31/16 P4,750,000

FVPA, 12/31/16 6,000,000
Surplus, 12/31/16 P1,250,000
Asset ceiling, 12/31/16 1,000,000
NDBA, 12/31/16 P1,000,000

3. (3 points)
Current service cost P1,200,000
Past service cost 750,000
Interest cost 275,000
Interest income – FVPA (3,500,000 x 10%) (350,000)
Interest on ACE (250,000 x 10%) 25,000
Defined benefit cost – PL P1,900,000

4. (3 points)
Actuarial loss P300,000
ROPA difference – credit (750,000 – 350,000) (400,000)
ACE difference – credit (25,000)
Defined benefit cost – OCI – credit P(125,000)

5. (4 points)
NDBA/L 2,275,000
Cash 2,275,000

Benefits expense – PL 1,900,000

Defined benefit cost – OCI 125,000
NDBA/L 1,775,000

CASE 5. (2 points)
Plyman Co expects to pay an additional 12 days of sick pay as a result of the unused entitlement that has
accumulated at 31 December 2015, i.e. 1 1⁄2 days x 8 employees. Plyman Co should recognize a liability equal to
12 days of sick pay.