1.

Employee benefits are

a. All forms of consideration given by an entity in exchange for service rendered by employees
or for the termination of employment.
b. Benefits that are expected to be settled wholly before twelve months after the end of the
annual reporting period in which the employees render the related service. (Short-term
benefits)
c. Benefits that are payable after the completion of employment. (Post Employment Benefits)
d. Benefits other than short-term employee benefits, post-employment benefits and
termination benefits (Other long term benefits)

2. Post-employment benefits include

a. Benefits provided in exchange for the termination of an employee’s employment.
(termination)
b. Paid annual leave and paid sick leave. (Short term)
c. Long service leave (Other long term benefits)
d. Pensions

3. Which of the following is a characteristic of a defined benefit plan?

a. The entity’s legal or constructive obligation is limited to the amount that it agrees to
contribute to the fund.
b. The amount of post-employment benefits received by the employee is determined by the
amount of contributions paid by an entity to a post-employment benefit plan or to an
insurance company, together with investment returns arising from the contributions.
c. Actuarial risk (that benefits will be less than expected) and investment risk (that assets
invested will be insufficient to meet expected benefits) fall, in substance, on the employee.
d. If actuarial or investment experience are worse than expected, the entity’s obligation may be
increased. (Possibility of actuarial gains and losses)

4. The deficit or surplus is:

a. The present value of the defined benefit obligation
b. The fair value of plan assets FV of PA > PV DBO Surplus
c. The difference between a and b
d. The total of a and b

5. Service cost excludes

a. The increase in the present value of the defined benefit obligation resulting from employee
service in the current period (Current Service Cost)
b. The change in the present value of the defined benefit obligation for employee service in prior
periods, resulting from a plan amendment or a curtailment (a significant reduction by the
entity in the number of employees covered by a plan) (Past Service Cost)
c. The difference between the present value of the defined benefit obligation being settled, as
determined on the date of settlement and the settlement price, including any plan assets
 transferred and any payments made directly by the entity in connection with the settlement.
(Gain or Loss on Settlement)
d. The change during the period in the net defined benefit liability (asset) that arises from the
passage of time

6. Remeasurements of the net defined benefit liability (asset) exclude

a. Actuarial gains and losses
b. The return on plan assets excluding amounts included in net interest on the net defined
benefit liability (asset)
c. Any change in the effect of the asset ceiling, excluding amounts included in net interest on
the net defined liability (asset)
d. The change during the period in the net defined benefit liability (asset) that arises from the
passage of time (Interest Cost)

PROBLEM 1

Kamille Company reported that the employees are each entitled to two weeks of paid vacation leave.
During the current year, the employees earned 1,500 weeks of vacation leave and used 1,000 weeks. The
current salary of the employees is an average of P3,000 per week and the salary is expected to increase
by P300 per week or a future weekly salary of P3,300.

1. What is the vacation pay expense if the benefit is accumulating and vesting?
a. 3,000,000
b. 4,500,000
c. 4,650,000
d. 4,950,000

2. What is the vacation pay expense if the benefit is nonaccumulating and nonvesting?
a. 3,000,000
b. 4,500,000
c. 4,650,000
d. 4,950,000

Question 1 Answer C

Vacation weeks used (1,000 x 3,000) 3,000,000

Vacation weeks unused ( 500 x 3,300) 1,650,000
Total Vacation Pay Expense 4,650,000

Accumulating and vesting paid absences are those that can be carried forward and the employees are
entitled to a cash payment for unused entitlement upon leaving the entity.

Question 2 Answer A

Vacation Pay Expense (1,000 x 3,000) 3,000,000

Nonaccumulating and nonvesting paid absences are those that cannot be carried forward and the
employees are not entitled to a cash payment for unused entitlement upon leaving the entity.

PROBLEM 2

Pope Company provided the following information about the earned vacation days during the first year
of operations:

Employees Average wage Vacation days earned Vacation days taken

per day this year this year
1 400 10 10
2 600 15 10
3 800 20 5

What amount should be reported as accrued vacation pay on December 31?

a. 29,000
b. 14,000
c. 15,000
d. 0

Answer C

Employee 2 (600 x 5 days not taken) 3,000

Employee 3 (800 x 15 days not taken) 12,000
Accrued vacation pay 15,000

PROBLEM 3

Elaine Company gives each of the 50 employees 12 days of vacation a year if they are employed at the
end of the year. The vacation accumulates and may be taken starting January 1 of the next year.

The employees work 8 hours per day. In 2015, they made P70 per hour and in 2016 they made P80 per
hour. During 2015, they took an average of 9 days of vacation each.

The entity’s policy is to record the liability existing at the end of each year at the wage rate for that year.

What amount of vacation liability should be reported on December 31, 2016

a. 468,000
b. 480,000
c. 336,000
d. 384,000

Answer B

Vacations days in 2015 12

Vacations days in 2016 12
Total 24
Vacation days taken in 2016 (9)
Vacation days not taken – 12/31/2016 15

Accrued liability – 12/31/2016 ( 50 x 15 x 8 hours x P80) 480,000

Note that the entity’s policy is to accrue liability at end of each year at the wage rate for that year.
Jessie Co, sponsors a defined benefit pension plan. For the current year ended December 31, the following
information relevant to the plan has been accumulated:
Defined benefit obligation, 1/1 P10,000,000
Fair value of plan assets, 1/1 9,000,000
Current service cost 1,000,000
Past service cost 2,000,000
Gain on settlement 500,000
Actual return on plan assets 630,000
Increase in defined benefit obligation
due to changes in actuarial assumptions 800,000
Market yield on high quality corporate bonds 6%
Yield on bonds issued by the entity 8%
Expected return on plan assets 9%

7. Calculate the amount that the entity would recognize in profit or loss for the year in accordance
with the revised PAS 19
a. P2,560,000 b. P2,570,000 c. P2,580,000 d. P2,590,000

Current service cost 1,000,000

Past service cost 2,000,000
Gain on settlement (500,000)

Net Interest Cost

DBO (10,000,000 x 6%) 600,000
FV of PA (9,000,000 x 6%) 540,000 60,000

8. Calculate the amount that the entity would recognize in other comprehensive income for the
year in accordance with the revised PAS 19
a. P710,000 b. P790,000 c. P800,000 d. P890,000

Remeasurement
Actuarial Loss 800,000
Actual Return on Plan Assets 630,000
Interest Income 540,000 (90,000) Remeasurement Gain
710,000

At the beginning of the current year, the memorandum records of Anne Company’s defined benefit plan
showed the following:
Fair value of plan assets P 7,500,000
Defined benefit obligation (11,000,000)
Prepaid (accrued) pension expense (P3,500,000)
The entity determined that its current service cost was P1,000,000 and the interest cost is 10%. The
expected return on plan assets was 12% but the actual return during the year was 8%. Other related
information at the end of the year:

Contribution to the plan P 1,200,000

Benefits paid to retirees 1,500,000
Decrease in defined benefit obligation
due to changes in actuarial assumption 200,000

9. Calculate the amount that the entity would recognize in profit or loss for the year in accordance
with the revised PAS 19
a. P1,000,000 b. P1,100,000 c. P1,200,000 d. P1,350,000

Current service cost 1,000,000

Net Interest Cost 350,000

Net Interest Cost

DBO (11,000,000 x 10%) 1,100,000
FV of PA (7,500,000 x 10%) 750,000 350,000

10. Calculate the net amount that the entity would recognize in OCI for the year in accordance with
the revised PAS 19
a. P200,000 gain b. P200,000 loss c. P50,000 loss d. P50,000 gain

Remeasurement
Actuarial Gain 200,000
Actual Return on Plan Assets (7,500x 8%) 600,000
Interest Income (750,000) (150,000) Remeasurement loss

11. The fair value of plan assets at the end of the current year is
a. P8,700,000 b. P8,250,000 c. P7,950,000 d. P7,800,000

FV of Plan Assets, Beg 7,500,000

Contribution to the Plan 1,200,000
Actual Return on Plan Assets 600,000
Benefits Paid (1,500,000)

12. Which statement is incorrect regarding short-term employee benefits?

a. Short-term employee benefits include non-monetary benefits for current employees if
expected to be settled wholly before twelve months after the end of the annual reporting
period in which the employees render the related services.
b. An entity need not reclassify a short-term employee benefit if the entity’s expectations of
the timing of settlement change temporarily.
c. If profit-sharing and bonus payments are not expected to be settled wholly before twelve
months after the end of the annual reporting period in which the employees render the
related service, those payments are other long-term employee benefits.
d. PAS 19 requires disclosures about short-term employee benefits for key management
personnel (RELATED PARTY DISCLOSURES)