Prepare the journal entry to record Switches Ltd’s current superannuation obligation for the defined contribution plan as at 30 June 2015. (b) Calculate the estimated benefits earned by employees in the defined benefit plan as at 30 June 2015. (c) Determine the present value of the defined benefit obligation as at 30 June 2015.
For many years Switches Ltd provided a defined benefit superannuation plan for its employees but owing to concerns about its exposure to risk it has been phasing out the defined benefit superannuation plan and replacing it with a defined contribution superannuation plan. Most employees belong to the defined contribution plan. Switches Ltd has paid contributions of $160 000 to the trustee of the defined contribution plan for the year ended 30 June 2015 but the contribution payable for services rendered by employees in the fund was $180 000 for the year. There are only four employees in the defined benefit plan at 30 June 2015 and they are due to retire on 30 June 2018. The employees’ entitlement increases with the length of their employment. At 30 June 2014 they were entitled to receive three times their annual salary on retirement. By 30 June 2015 they were entitled to receive 3.2 times their annual salary on retirement. The aggregate salaries of the four members of the defined benefit fund are $200 000 for the year ended 30 June 2015 and are expected to increase by 5 per cent per annum over the next three years. All members of the defined benefit fund are expected to continue employment until retirement.
The estimated benefits earned by employees who were members of the defined benefit fund were $694 574 and the present value of the defined benefit obligation was $529 887 at 30 June 2014. The interest rate used to discount the defined benefit obligation was 7 per cent at 30 June 2014 and 30 June 2015. The defined benefit plan assets had a fair value of $529 887 at 30 June 2014. For the year ended 30 June the contributions were $20 000 and the fair value of plan assets at 30 June 2015 was $585 000. The expected return on the plan assets was 8 per cent for the year ended 30 June 2015.
Required
(a) Prepare the
(b) Calculate the estimated benefits earned by employees in the defined benefit plan as at 30 June 2015.
(c) Determine the present value of the defined benefit obligation as at 30 June 2015.
(d) Calculate the interest cost of the defined benefit obligation for the year ended 30 June 2015 and the current year service cost.
(e) Determine the amount of the actuarial gains and losses on the defined benefit obligation and the defined benefit plan assets for the year ended 30 June 2015.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
