I. Determine whether each statement refers to (A) defined contribution plan or (B) defined benefit plan. I.

I. Determine whether each statement refers to (A) defined contribution plan or (B) defined benefit plan.
1. An employee is guaranteed specific amount of benefit, which is usually related to his salary and years of service. 1. An employee is guaranteed specific amount of benefit, which is usually related to his salary and years of service.
2. The entity assumes the investment risk. 2. The entity assumes the investment risk.
3. The accumulated fund in the hands of the trustee which the entity contributes determines the retirement benefit of an employee. 3. The accumulated fund in the hands of the trustee which the entity contributes determines the retirement benefit of an employee.
4. The entity deducts a percentage of an employee’s salary for the purpose of SSS contribution. 4. The entity deducts a percentage of an employee’s salary for the purpose of SSS contribution.
5. The entity is obliged to provide specific level of benefit for every year of service under R.A. 7641. 5. The entity is obliged to provide specific level of benefit for every year of service under R.A. 7641.
II. Identify whether each statement is (T) true or (F) false. II. Identify whether each statement is (T) true or (F) false.
1. Defined benefit pension plans provide for an increase in future retirement benefits as additional services are rendered by an 1. Defined benefit pension plans provide for an increase in future retirement benefits as additional services are rendered by an
employee. employee.
2. A debit balance in the net defined benefit liability (asset) account indicates that current-period contributions were less than the 2. A debit balance in the net defined benefit liability (asset) account indicates that current-period contributions were less than the
net periodic pension cost for the current period. net periodic pension cost for the current period.
3. Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and the 3. Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and the
expense and there is a possibility of actuarial gains and losses. expense and there is a possibility of actuarial gains and losses.
4. If the present value of the defined benefit obligation exceeds the fair value of the plan assets, the excess is always reported as 4. If the present value of the defined benefit obligation exceeds the fair value of the plan assets, the excess is always reported as
a liability in the balance sheet. a liability in the balance sheet.
5. The difference between the present value of the defined benefit obligation and the settlement price represents an actuarial gain 5. The difference between the present value of the defined benefit obligation and the settlement price represents an actuarial gain
or loss. or loss.
III. Identify the letter of choice that best answers each of the following items. III. Identify the letter of choice that best answers each of the following items.
1. Postemployment benefits include all of the following, except 1. Postemployment benefits include all of the following, except
a. Long-term disability benefits. c. Postemployment life insurance. a. Long-term disability benefits. c. Postemployment life insurance.
b. Retirement benefits, such as pensions. d. Postemployment medical care. b. Retirement benefits, such as pensions. d. Postemployment medical care.
2. Which is incorrect concerning the recognition and measurement of a defined benefit plan? 2. Which is incorrect concerning the recognition and measurement of a defined benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense and there is a possibility of actuarial gains a. Actuarial assumptions are required to measure the obligation and expense and there is a possibility of actuarial gains
and losses. and losses.
b. The obligation is measured on a discounted basis. b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded. c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution due for the period. d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution due for the period.
3. The service cost of a defined benefit plan comprises all of the following, except 3. The service cost of a defined benefit plan comprises all of the following, except
a. Current service cost. c. Gain or loss on settlement. a. Current service cost. c. Gain or loss on settlement.
b. Past service cost. d. Net interest. b. Past service cost. d. Net interest.
4. What is the treatment of gain or loss on the settlement of benefit plan? 4. What is the treatment of gain or loss on the settlement of benefit plan?
a. As a separate component of income from continuing operations. a. As a separate component of income from continuing operations.
b. As a component of discontinued operation. b. As a component of discontinued operation.
c. As a component of service cost included in determining employee benefit expense. c. As a component of service cost included in determining employee benefit expense.
d. As component of other comprehensive income. d. As component of other comprehensive income.
5. A pension asset is reported when 5. A pension asset is reported when
a. The accumulated benefit obligation exceeds the fair value of plan assets. a. The accumulated benefit obligation exceeds the fair value of plan assets.
b. The accumulated benefit obligation exceeds the fair value of plan assets but a past service cost exists. b. The accumulated benefit obligation exceeds the fair value of plan assets but a past service cost exists.
c. Plan assets at fair value exceed the accumulated benefit obligation. c. Plan assets at fair value exceed the accumulated benefit obligation.
d. Plan assets at fair value exceed the defined benefit obligation. d. Plan assets at fair value exceed the defined benefit obligation.
IV. Solve for what is asked in each requirement. IV. Solve for what is asked in each requirement.
On January 1, 2023, Lopez Co. has fair value on plan assets and defined benefit obligation of P2,000,000 and On January 1, 2023, Lopez Co. has fair value on plan assets and defined benefit obligation of P2,000,000 and
P1,400,000, respectively. During the year, Lopez Co. recognized (a) Past service cost – P350,000; (b) Current service cost – P1,400,000, respectively. During the year, Lopez Co. recognized (a) Past service cost – P350,000; (b) Current service cost –
P600,000; (c) Benefits paid during the period – P230,000; (d) Remeasurement gain on plan assets – P60,000; (e) Contributions to P600,000; (c) Benefits paid during the period – P230,000; (d) Remeasurement gain on plan assets – P60,000; (e) Contributions to
the fund – P600,000; (f) Increase in DBO due to changes in actuarial assumptions – P80,000; and (g) Increase in DBO arising the fund – P600,000; (f) Increase in DBO due to changes in actuarial assumptions – P80,000; and (g) Increase in DBO arising
from the passage of time – P168,000. from the passage of time – P168,000.
a. How much is the defined benefit obligation as of 12/31/2023? g. What is the amount of adjustment to net defined a. How much is the defined benefit obligation as of 12/31/2023? g. What is the amount of adjustment to net defined
b. How much is the actual return on plan assets? benefit asset (liability) for 2023? Indicate if “debit” b. How much is the actual return on plan assets? benefit asset (liability) for 2023? Indicate if “debit”
c. How much is the fair value on plan assets as of 12/31/2023? or “credit”. c. How much is the fair value on plan assets as of 12/31/2023? or “credit”.
d. How much is the net defined benefit asset (liability) as of 12/31/2023? h. How much OCI should be recycled to P/L? d. How much is the net defined benefit asset (liability) as of 12/31/2023? h. How much OCI should be recycled to P/L?
e. How much is the defined benefit cost to be recognized in P/L? i. Prepare the compound journal entry to record the e. How much is the defined benefit cost to be recognized in P/L? i. Prepare the compound journal entry to record the
f. How much is the defined benefit cost to be recognized in OCI? Indicate if employee benefit expense. f. How much is the defined benefit cost to be recognized in OCI? Indicate if employee benefit expense.
“debit” or “credit”. “debit” or “credit”.