Some years ago, Junior Ltd established a defined benefit pension plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Junior Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time. The following actuarial report has been received for the defined benefit plan: 2018 ($) Present value of the defined benefit obligation 31 December 2017 20,000,000 Past service cost 2,000,000 net interest a current service cost 800,000 benefits paid 2,100,000 actuarial loss on DBO 100,000 Present value of the defined benefit obligation 31 December 2018 23,000,000 Fair value of plan assets at 31 December 2017 19,000,000 Return on plan assets b Contributions paid to the plan during the year 1,000,000 Benefits paid by the plan during the year 2,100,000 Fair value of plan assets at 31 December 2018 20,130,000 Additional information (a) All contributions received by the plan were paid by Junior Ltd. Employees make no contributions. (b) The interest rate used to measure the present value of the defined benefit obligation was 10% at 31 December 2017 and 31 December 2018. (c) The asset ceiling was nil at 31 December 2017 and 31 December 2018. Requirements: a) Determine the surplus or deficit of Junior Ltd.’s defined benefit plan at 31 December 2018. b) Determine the net defined benefit asset or liability that should be recognised by Maple Ltd at 31 December 2018 c) Calculate the net interest and the return on plan assets for 2018 d) Prepare a pension worksheet for the period ended December 31 2018 e) Prepare the journal entries to account for the defined benefit pension plan in the books of Junior Ltd for the year ended December 31 2018

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Some years ago, Junior Ltd established a defined benefit pension plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Junior Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time. The following actuarial report has been received for the defined benefit plan:

	2018 ($)
Present value of the defined benefit obligation 31 December 2017	20,000,000
Past service cost	2,000,000
net interest	a
current service cost	800,000
benefits paid	2,100,000
actuarial loss on DBO	100,000
Present value of the defined benefit obligation 31 December 2018	23,000,000
Fair value of plan assets at 31 December 2017	19,000,000
Return on plan assets	b
Contributions paid to the plan during the year	1,000,000
Benefits paid by the plan during the year	2,100,000
Fair value of plan assets at 31 December 2018	20,130,000

Additional information
(a) All contributions received by the plan were paid by Junior Ltd. Employees make no contributions.
(b) The interest rate used to measure the present value of the defined benefit obligation was 10% at 31 December 2017 and 31 December 2018.
(c) The asset ceiling was nil at 31 December 2017 and 31 December 2018.

Requirements:
a) Determine the surplus or deficit of Junior Ltd.’s defined benefit plan at 31 December 2018.
b) Determine the net defined benefit asset or liability that should be recognised by Maple Ltd at 31 December 2018
c) Calculate the net interest and the return on plan assets for 2018
d) Prepare a pension worksheet for the period ended December 31 2018
e) Prepare the journal entries to account for the defined benefit pension plan in the books of Junior Ltd for the year ended December 31 2018

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