Chapter – Employee Benefits CHAPTER EMPLOYEE BENEFITS PROBLEMS – (Bali Company) (a) Beginning liability for compensated absences x 420 = P2,520 (b) Employee Benefit Expense for Sick Leave and Vacation Leave Sick Leave Vacation Leave x P450 10 x 420 x 400 x 380 12 x P450 12 x 420 x 400 x 380 P2,250 4,200 800 760 P5,400 5,040 800 1,900 Total (c) 2,520 P8,010 13,140 P21,150 Liability for Compensated Absences Employee Benefit Expense – Compensated Absences 10,280 Cash 12,800 Total amount paid for compensated absences Sick leave (as computed above) 8,010 Vacation leave x 450 3,150 x 420 1,260 x 380 380 4,790 12,800 (d) Employee Benefit Expense – Compensated 10,870 Liability for Compensated Absences 10,870 Liability for Compensated Absences, 12/31/09 Employee Unused Vacation Days Rate A B Santos 12-7 P450 C D Garcia 12+6 -3 15 420 E F Cruz 2 400 G H Buen 5–1 380 Total 6-2 Absences Amount P2,250 6,300 800 1,520 P10,87 (Green Grass Company) MISSING INFORMATION During 2009, 35 employees each took 12 days of sick leave, while the remaining 25 employees took 10 days of sick leave 57 Chapter – Employee Benefits At December 31, 2009, it is expected that 40 employees will take no more than 12 days of sick leave during 2010 and the remaining employees will take no more than 10 days of sick leave (a) Total payment in 2009 35 x 12 x 450 25 x 10 x 45 P301,500 Liability, beginning of 2009 (13-10) x 20 x 450) P189,000 112,500 (27,000) Liability, end of 2009 (12 – 10) x 40 x 450) 36,000 Liability for sick leave P310,500 (b) P36,000 (see above) (c) Liability for Compensated Absences Compensated Absences 27,000 27,000 36,000 6-3 301,500 Compensated Absences Liability for Compensated Absences 36,000 301,500 (Blue Jeans Company) (a) Retirement Benefit Expense = Required Contribution = (P6,000,000 x 8%) + (35,000,000 - P10,000,000)5% =P1,730,000 (b) 6-4 Compensated Absences Cash Retirement Benefit Expense Prepaid Retirement Benefit Cost Cash 1,730,000 70,000 1,800,000 Retirement Benefit Expense Cash Accrued Retirement Benefit Cost 1,730,000 1,500,000 230,000 (Royal Trading Company) (a) Accrued Retirement Benefit Cost 12/31/08 (P3,000,000 - P2,600,000) 400,000 (b) Retirement Benefit Expense Service Cost Interest Cost Expected return on plan assets 58 = P P1,000,00 270,00 Chapter – Employee Benefits 9% x P2,600,000 Retirement Benefit Expense (234,000) P 1,036,000 (c) Retirement Benefit Expense 1,036,000 Cash 900,000 Prepaid/Accrued Retirement Benefit Cost 136,000 (d) (1) Benefit Obligation Beginning Benefit Obligation P3,000,00 1,000,000 270,000 (350,000) P3,920,00 Service cost Interest cost Benefits paid Benefit Obligation, 12/31/09 (2) Plan Assets Beginning Plan Assets P2,600,00 900,000 300,000 (350,000 P3,450,00 Contribution Actual return Benefits paid Ending benefit obligation (3) Unrecognized actuarial gain Actual return on plan assets Expected return on plan assets 2,600,000 x 9% Unrecognized actuarial gain, 12/31/09 (e) P 66,000 Accrued Retirement Benefit Obligation, 12/31/09 Accrued beginning retirement benefit cost P 400,000 Additional underfunding 136,000 Accrued ending P 536,000 Reconciliation: Debit: Plan Assets P3,450,00 Credit: Accrued Benefit Obligation P 3,920,000 Unrecognized actuarial gain 66,000 Net credit - Accrued Retirement Benefit Cost 6-5 P 300,000 234,000 (German Company) (a) Retirement Benefit Expense 59 3,986,000 P 536,000 400,000 Chapter – Employee Benefits 40,000 (b) Cash Prepaid/Accrued Retirement Benefit Cost Debit Plan Assets P1,250,00 50,5000 P1,300,00 Unrecognized Past Service Cost Total Credit Accrued Benefit Obligation Net Credit - Accrued Retirement Benefit Cost 6-6 360,000 1,350,000 P50,000 (Arnel Company) (a) Debit P8,500,000 Fair value of plan assets Unrecognized past service cost 900,000 Credit Accrued Benefit Obligation Net Debit - Prepaid 1/01/09 (b) Retirement Benefit Expense Current Service Cost Interest Cost 10% x P8,200,000 Expected Return on Plan Assets 9% x P8,500,000 Amortization of Past Service Cost (P900,000/ 12) Retirement Benefit Expense (c) Retirement Benefit Expense Prepaid/Accrued Ret Benefit Cost Cash P 9,400,000 8,200,000 P1,200,00 P1,200,00 820,000 (765,000) 75,000 P1,330,00 1,330,000 170,000 1,500,000 (d) Prepaid, Beg P1,200,00 170,000 P1,370,00 Additional overfunding Prepaid, End (e) Reconciliation Debit: Plan Assets 1,500,000 8,500,000 60 + 780,000 + P10,780,00 Chapter – Employee Benefits Unrecognized past service cost 900,000 75,000 825,000 P11,605,00 Credit: ABO = 8,200,000 + 1,200,000 + 820,000 Unrecognized actuarial gain 780,000 765,000 10,220,000 15,000 10,235,000 Net Debit - Prepaid Retirement Benefit Cost 12/31 6-7 (Yellow Moon Company) (a) Actuarial Gain Excess of Actual FV of PA Over Expected Value (P50,000,000 – P45,000,000) Excess of expected benefit obligation over accrued benefit obligation P57,000,000 – P56,000,000) Total actuarial gain (b) Recognized actuarial gain Total actuarial gain Corridor (10% x P56,000,000) Excess, subject to amortization Average service life Recognized actuarial gain 6-8 P1,370,000 (Maharlika Company) (a)(1) Unrecognized actuarial loss Excess of estimated fair value over actual value of plan assets Excess of actual ABO over expected ABO Total actuarial loss 1/1/07 (2) Defined Benefit Asset Debit (P8,000,000 +P1,100,000+800,000) Credit (ABO) Net Debit – Defined Benefit Asset (3) Amortization of actuarial loss Actuarial loss, 1/01/09 Corridor 10% x P9,000,000 61 P5,000,00 1,000,000 P6,000,00 P6,000,00 5,600,000 400,000 12 years P 33,333 P200,000 900,000 P1,100,00 P9,900,00 9,000,000 P900,000 P1,100,00 900,000 Chapter – Employee Benefits Excess Average working life Amortization of actuarial loss (4) (5) P 200,000 10 years P 20,000 Amortization of past service cost P800,000 / P160,000 Retirement Benefit Expense Service cost Interest cost 10% x P9,000,000 Expected return on plan assets 8,000,000 Recognized actuarial loss Amortization of past service cost Retirement benefit expense 7% (b) Retirement Benefit Expense Prepaid/Accrued Retirement Benefit Cost Cash (c) Prepaid, beginning 20,000 160,000 P1,520,00 1,520,000 480,000 2,000,000 P 900,000 480,000 P1,380,00 Additional overfunding Prepaid, end (d) x P1,000,00 900,000 (560,000) Ending Balances: Plan assets Beginning balance Contributions Actual return Benefits paid Plan assets, end P8,000,000 2,000,000 640,000 (600,000) P10,040,000 Accumulated Benefit Obligation Beginning balance Service cost Interest cost Benefits paid Benefit obligation, end P9,000,000 1,000,000 900,000 (600,000) P10,300,000 Unrecognized actuarial loss Beginning Additional gain {640,000 – 560,000) Amortized actuarial loss Ending Unamortized Past service cost P800,000 – 160,000 62 P1,100,000 (80,000) (20,000) P1,000,000 P 640,000 Chapter – Employee Benefits Reconciliation: Debit Plan assets Unamortized actuarial loss Unamortized past service cost Total debit Credit Accrued Benefit Obligation Net debit – Prepaid P10,040,000 1,000,000 640,000 P11,680,000 10,300,000 P1,380,000 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 D A A A A MC6 MC7 MC8 MC9 MC10 D D A C B Problems MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 MC21 MC22 MC23 MC24 MC25 MC26 MC27 MC28 MC29 MC30 MC31 B C A B D B D B D D B C A B C D A B A D C 140,000 – (6% x 3,200,000) + (9% x 3,200,000) 443,000 + 2,557,000 – 2,800,000 = 77,000 prepaid (3,800,000 + 580,000) – (800,000 +5,000,000) 580,000 / (800,000 – 500,000) / 10 600,000 + 116,000 – 30,000 + 600,000 – 532,000 3,800,000 + 550,000 + 750,000 5,000,000 + 600,000 + 600,000 580,000 – 116,000 800,000 + 18,000 – 30,000 750,000 – 754,000 1, 420,000 + 4,000 4,729,000 + 390,000 – 460,000 - 4,600,000 5,565,000 + 390,000 - 425,000 – 5,035,000 59,000 – 450,000 – 32,500 + 460,000 190,000 + 150,000 – 980,000 + 500,000 600,000 – 240,000 4,400,000 – 600,000 + 1,480,000 + 528,000 800,000 + 1,000,000 – 832,000 + 20,000 2,400,000 + 300,000 - 2,500,000 The prepaid benefit cost on the statement of financial position is the lower between (a) 3,700,000 + 300,000 + 200,000 – 3,300,000 = 900,000 and (b) 300,000 + 200,000 + 100,000 = 600,000 Thus, the defined benefit asset is P600,000 63 ... MC18 MC19 MC20 MC21 MC 22 MC23 MC24 MC25 MC 26 MC27 MC28 MC29 MC30 MC31 B C A B D B D B D D B C A B C D A B A D C 140,000 – (6% x 3 ,20 0,000) + (9% x 3 ,20 0,000) 443,000 + 2, 557,000 – 2, 800,000 =... Total payment in 20 09 35 x 12 x 450 25 x 10 x 45 P301,500 Liability, beginning of 20 09 (13-10) x 20 x 450) P189,000 1 12, 500 (27 ,000) Liability, end of 20 09 ( 12 – 10) x 40 x 450) 36, 000 Liability... 4, 729 ,000 + 390,000 – 460 ,000 - 4 ,60 0,000 5, 565 ,000 + 390,000 - 425 ,000 – 5,035,000 59,000 – 450,000 – 32, 500 + 460 ,000 190,000 + 150,000 – 980,000 + 500,000 60 0,000 – 24 0,000 4,400,000 – 60 0,000