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20-61 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
CHEN Group.
Pension Worksheet—2019
General Journal Entries
Memo Record
PROBLEM 20.12 (Continued)
(b) 2019
Pension Expense ..................................................... 49,900
(c) Financial Statements—2019
Income Statement
Pension expense ............................................... ¥49,900
Comprehensive Income Statement
20-63 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
(a) HOLLENBECK FOODS INC.
Postretirement Benefit Worksheet—2019
General Journal Entries
Memo Record
Items
Annual
Postretirement
Expense
Cash
OCI—Gain/
Loss
Postretirement
Asset/Liability
DPBO
Plan Assets
Balance, Jan. 1, 2019
200,000 Cr.
200,000 Dr.
Service cost
70,000 Dr.
70,000 Cr.
Interest expense*
20,000 Dr.
20,000 Cr.
PROBLEM 20.14
(a) See worksheet on next page.
(b) December 31, 2019
Postretirement Expense ..................................... 75,000
(c) See worksheet on next page. The entry is below.
December 31, 2020
Other Comprehensive Income (G/L) .................. 119,500
Postretirement Expense ..................................... 289,000
Cash .............................................................. 35,000
Postretirement Asset/Liability..................... 373,500
20-65 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
General Journal Entries
Memo Record
Annual
Expense
Cash
OCI—
Gain/Loss
Postretirement
Asset/Liability
DPBO
Plan
Assets
Balance, Jan. 1, 2019
2,250,000 Cr.
2,250,000 Dr.
Service cost
75,000 Dr.
75,000 Cr.
Interest expensea
225,000 Dr.
225,000 Cr.
PROBLEM 20.14 (Continued)
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 20.1 (Time 30–35 minutes)
Purpose—to provide the student with the opportunity to discuss some of the more traditional issues
CA 20.2 (Time 25–30 minutes)
Purpose—to provide the student with the opportunity to discuss the terminology employed in IAS No.
CA 20.3 (Time 20–25 minutes)
Purpose—to provide the student with the opportunity to discuss the reasons why accrual accounting is
CA 20.4 (Time 30–35 minutes)
Purpose—to provide the student with the opportunity to study some of the implications of IAS No. 19.
The student is required to identify the components of pension expense and how to report gains and
losses.
CA 20.5 (Time 50–60 minutes)
Purpose—to provide the student with the opportunity to discuss the implications of IAS No. 19, given a
CA 20.6 (Time 20–30 minutes)
SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 20.1
(a) A private pension plan is an arrangement whereby a company undertakes to provide its retired
employees with benefits that can be determined or estimated in advance from the provisions of a
document or from the company’s practices.
(c) 1. Relative to the pension fund the term “funded” refers to the relationship between pension
fund assets and the present value of expected future pension benefit payments; thus, the
pension fund may be fully funded or underfunded. Relative to the employer, the term
“funded” refers to the relationship of the contributions made by the employer to the pension
(d) 1. The theoretical justification for accrual recognition of pension costs is based on the expense
recognition principle. Pension costs are incurred during the period over which an employee
renders services to the enterprise; these costs may be paid upon the employee’s
CA 20.1 (Continued)
(e) Terms and their definitions as they apply to accounting for pension plans follow:
1. Service cost is the actuarial present value of benefits attributed by the pension benefit formula
2. Past service costs are the retroactive benefits granted in a plan amendment (or initiation).
3. Vested benefits are benefits that are not contingent on the employee continuing in the service
of the employer. In some plans, the payment of the benefits will begin only when the
employee reaches the normal retirement date; in other plans the payment of the benefits
CA 20.2
1. Pension asset/liability is the cumulative contributions in excess of accrued net pension expense.
This item is reported in the asset section of the statement of financial position and is reduced
when pension expense is greater than the contribution made to the fund during a period.
2. Pension asset/liability is the cumulative net pension expense accrued in excess of the employer’s
contributions. This item is reported in the liability section of the statement of financial position and
is increased when pension expense is greater than the contribution made to the fund.
CA 20.3
(a) 1. The theoretical justification for accrual recognition of pension costs is based on the expense
recognition principle. Pension costs are incurred during the period over which an employee
renders services to the enterprise; these costs may be paid upon the employee’s
(b) Terms and their definitions as they apply to accounting for pensions follow:
1. Fair value of pension assets, when based on a calculated value of pension plan asset
values over a period of time. Considerable flexibility is permitted in computing this amount.
(c) The following disclosures about a company’s pension plans should be made in financial
statements or their notes (see Illustration 20.25)
Amounts reported in the financial statements
Companies should provide reconciliation from the beginning balance to the ending balance for
each of the following:
1. Plan assets.
This reconciliation should report the following, where appropriate.
• Current service cost.
CA 20.3 (Continued)
Information on how the defined benefit plan may affect the amount, timing, and
uncertainty of future cash flows
(1) Sensitivity analysis for each significant actuarial assumption, showing how the defined
benefit obligation would have been affected by changes in the relevant actuarial assumption
that were reasonably possible at the reporting date.
(2) Methods and assumptions used in preparing the sensitivity analyses required by (1) and the
limitations of those methods.
CA 20.4
(a) Pension benefits are part of the compensation received by employees for their services. The
actual payment of these benefits is deferred until after retirement. The pension expense
measures this compensation and consists of the following two elements:
1. The service cost component is the present value of the benefits earned by the employees
(b) The major similarity between the vested benefit obligation and the defined benefit obligation is
(c) (1) Pension gains and losses, sometimes called remeasurements, result from changes in the
value of the defined benefit obligation or the fair value of the plan assets. These changes
arise from the deviations between the estimated conditions and the actual experience, and
from changes in assumptions. The volatility of these gains and losses may reflect an
CA 20.5
1. This situation can exist because companies vary as to whether they are using an implicit or ex-
plicit set of assumptions when interest rates are disclosed. In the implicit approach, two or more
assumptions do not individually represent the best estimate of the plan’s future experience with
2. This situation will occur because of the pension liability required to be reported. That is, companies
are required to report as a liability the excess of their defined benefit obligation over the fair value
of plan assets. In the past, the basic liability companies reported was the excess of the amount
expensed over the amount funded.
3. This statement is questionable. If a financial measure purports to represent a phenomenon that is
volatile, the measure should show that volatility or it will not be representationally faithful. Never-
theless, many argue that volatility is inappropriate when dealing with such long-term measures as
4. These gross pension plan assets are not reported on the employer’s books. However, the fair
value of plan assets are required to be reported in the footnote, so that a reader of the financial
statements can determine the funded status of the plan.
5. (a) In a defined contribution plan, the amount contributed is the amount expensed. No significant
reporting problems exist here. On the other hand, defined benefit plans involve many difficult
reporting issues which may lead to additional expense and liability recognition.
Significant amendments will generally increase past service cost which are included in
