Question: Dayte Corporation reports the following January

15 Aug 2024,11:16 PM

 

Dayte Corporation reports the following January 1, 2014 balances for its defined benefit pension plan, which it accounts for using the immediate recognition approach under IFRS: plan assets, $460,000; defined benefit obligation, $460,000. Other data relating to three years of operation of the plan are as follows:

Instructions

(a) Prepare and complete a pension worksheet for 2014.

(b) Prepare a continuity schedule of the projected benefit obligation over the three-year period.

(c) Prepare a continuity schedule of the plan assets over the three-year period.

(d) Determine the pension expense for each of 2014, 2015, and 2016.

(e) Prepare the journal entries to reflect the pension plan transactions and events for each year.

(f) Prepare a schedule reconciling the pension plan s funded status with the pension amounts reported on the statement of financial position over the three-year period.

(g) Determine the pension expense for each of 2014, 2015, and 2016 assuming that the company elects to apply the immediate recognition approach under ASPE.

 

DRAFT/STUDY TIPS

This problem involves pension accounting for Dayte Corporation under IFRS using the immediate recognition approach, with a defined benefit plan. Let me break down the instructions and solve the problem step-by-step.

Given Information:

• Plan assets as of January 1, 2014: $460,000
• Defined benefit obligation (DBO) as of January 1, 2014: $460,000
• Reporting for three years: 2014, 2015, and 2016

We need to prepare several schedules, determine the pension expense, and prepare journal entries. Since specific data like service cost, interest cost, contributions, benefits paid, and actual returns on plan assets aren't provided, I will assume hypothetical figures for the purpose of illustration.

(a) Pension Worksheet for 2014

To complete the pension worksheet, we need details such as service cost, interest cost, contributions, and actual returns on plan assets. I'll assume some sample numbers:

• Service cost: $50,000
• Interest cost (assume 5% discount rate on the DBO): $23,000
• Actual return on plan assets: $22,000
• Contributions: $40,000
• Benefits paid: $15,000

The pension worksheet involves the following columns:

Date	Annual Pension Expense Components	Beginning DBO	Ending DBO	Beginning Plan Assets	Ending Plan Assets	Net Pension Asset/Liability
01/01/2014	Opening Balances	$460,000	-	$460,000	-	$0
12/31/2014	Service Cost ($50,000)
	Interest Cost ($23,000)
	Actual Return on Plan Assets
	Contributions
	Benefits Paid

(Note: The table is an illustration template. We'll populate this as we compute the values).

(b) Continuity Schedule for Projected Benefit Obligation (PBO)

This schedule tracks the changes in the DBO over the three years.

Hypothetical Continuity Schedule:

Year	Beginning PBO	Service Cost	Interest Cost	Benefits Paid	Actuarial Gains/Losses	Ending PBO
2014	$460,000	$50,000	$23,000	($15,000)	$0	$518,000
2015	$518,000	$52,000	$25,900	($18,000)	($8,000)	$569,900
2016	$569,900	$54,000	$28,495	($20,000)	$5,000	$637,395

(c) Continuity Schedule for Plan Assets

This schedule tracks the changes in the plan assets over the three years.

Hypothetical Continuity Schedule:

Year	Beginning Plan Assets	Contributions	Benefits Paid	Actual Return	Ending Plan Assets
2014	$460,000	$40,000	($15,000)	$22,000	$507,000
2015	$507,000	$42,000	($18,000)	$24,000	$555,000
2016	$555,000	$45,000	($20,000)	$27,000	$607,000

(d) Pension Expense for 2014, 2015, and 2016

The formula for pension expense under IFRS is:

Pension Expense=Service Cost+Net Interest on the Net Defined Benefit Liability (Asset) 

• 2014: Pension expense = $50,000 (service cost) + $23,000 (interest cost) − $22,000 (actual return on plan assets) = $51,000
• 2015: Pension expense = $52,000 (service cost) + $25,900 (interest cost) − $24,000 (actual return on plan assets) = $53,900
• 2016: Pension expense = $54,000 (service cost) + $28,495 (interest cost) − $27,000 (actual return on plan assets) = $55,495

(e) Journal Entries

1. 2014 Journal Entries

   • Pension Expense: Dr. $51,000
   • Contributions: Cr. $40,000
   • Plan Assets: Cr. $22,000
   • Cash: Cr. $40,000 (for contributions)
   • Pension Liability: Cr. $15,000 (for benefits paid)

2. 2015 Journal Entries

   • Pension Expense: Dr. $53,900
   • Contributions: Cr. $42,000
   • Plan Assets: Cr. $24,000
   • Cash: Cr. $42,000 (for contributions)
   • Pension Liability: Cr. $18,000 (for benefits paid)

3. 2016 Journal Entries

   • Pension Expense: Dr. $55,495
   • Contributions: Cr. $45,000
   • Plan Assets: Cr. $27,000
   • Cash: Cr. $45,000 (for contributions)
   • Pension Liability: Cr. $20,000 (for benefits paid)

(f) Schedule Reconciling Pension Plan's Funded Status

To reconcile the funded status (difference between plan assets and DBO) over the three years:

Year	Plan Assets	Defined Benefit Obligation	Funded Status (Asset/Liability)
2014	$507,000	$518,000	($11,000)
2015	$555,000	$569,900	($14,900)
2016	$607,000	$637,395	($30,395)

(g) Pension Expense under ASPE

Under ASPE (immediate recognition approach), the pension expense would be similar to IFRS, as all components of the pension expense are recognized immediately.

Would you like to modify any of the assumptions or need further clarification?