Intermediate Acctg 2 - Millan

INTERMEDIATE ACCOUNTING 2 GEORGIE ANN P. IPO BSA-B EMPLOYEE BENEFITS PART 1 Assignment no. 1

April 3, 2020

Problem 1:   (pg. 238) 1. FALSE. According to PAS 19employee benefits are cash considerations given by an entity in exchange for services rendered by employees.  2. TRUE. employee benefits are accrued only after an employee has rendered service 3. TRUE. An entity provides its employees one paid sick leave and one paid vacation leave for each month rendered by an employee. Sick leaves can be carried over to subsequent years and are monetized when the employee retires or resigns. Vacation leaves cannot be carried over the subsequent periods and are not monetized when not taken. The entity shall accrue a year-end liability for compensated absences for unused sick leaves but not for unused vacation leaves 4. TRUE Compensated absences include payments by employers for vacation, holiday, illness or other personal activities. 5. TRUECurrent PFRS require a liability to be recognized for compensated absences that have been earned through services rendered, that are vested or carried forward to subsequent years, and that are estimable and probable. 6. FALSE.. PAS 19 employee benefits require sick pay to be accrued only if it vest with the employee. 7. FALSE. The accounting for defined contribution plans is complex because it requires actuarial valuations. 8. FALSE.. Under a defined contribution plan, the employer bears the risk that funds are insufficient to pay the retirement benefits of retiring employees. 9. FALSE..Under a funded plan, the entity holds and manages a fund that will be used solely for the payment for retirement benefits of employees.  10. FALSE.. An entity’s monthly contributions to the SSS for the benefit of its employees are accounted for as a defined benefit plan. Problem 2 no. 9-10 (pg. 241-242) Seatwork no. 1

April 14, 2020

9. The entity provides its employees six paid vacation leaves and two paid sick leaves per year. Unused vacation leaves cannot be carried over to subsequent years and are not monetized if not taken. Unused sick leaves can be carried over to subsequent years and are monetized when an employee retires or leaves the company before retirement.  During the year, the entity has 20 employees, each currently earning a rate of P500 per day. A total of 48 days of vacation leaves and 14 days of sick leaves were taken during the year. The entity expects a 3% increase in the pay rate of the employees in the following year:

Requirement: Compute for the accrued liability for compensated absences at year-end.  Solution : Sick leave- accum.&vesting

2

Number of employees

20

Total entitlement during the year

40

Total Entitlement during the year

40

Less: Sick leaves take.

14

No. of sick leaves carried forward

26

Multiply by: Future rate (500*103%)

515

Accrued Liability- end

C ₱13,390.00

10. An entity reports profit before bonus and taxes of P200,000 during the year. The entity has an established policy of paying its top management a 2% bonus on annual profit. The entity is subject to an income tax rate of 30%. Requirements: compute for the amount of bonus under each of the following bonus schemes. A. Bonus is based on profit before deducting bonus and income tax.

      B= P x Br           =200,000 x 20% = 4,000

B. Bonus is based on profit after deducting bonus but before deducting income tax. P B= P1+ Br  =200,000 – (200,000 / (1+2%)) = 3,922

C. Bonus is based on profit before deducting bonus but after deducting income tax. 1−Tr B= P x 1 −Tr Br =200,000 x (1-30%)/((1/2%)-30%)  =200,000 x (0.7/49.7) = 2,817   D. Bonus is based on profit after deducting both bonus and income tax. 1−Tr 1 B= P x +1 Br−Tr   =200,000 x (1-30%)/((1/2%)-30%+1))  =200,000 x (0.7/50.7) = 2,761

Problem (Other book)

April 14, 2020

Seatwork no. 2

Kamille Company reported that the employees are each entitled to two weeks of paid 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? Vacation weeks: 1,000 500 Weekly Salary:   3,000                                    3,300 Vacation weeks (used)        3,000,000             (unused)       1,650,000 Solution:  Vacation weeks used  Vacation weeks unused

3,000,000  1,650,000  P4,650,000 C

2. What is the vacation pay expense if the benefit is non-accumulating and noninvesting?

Solution:  Vacation weeks Multiply by: weekly salary

1,000 3,000  P3,000,000 A

Problem 6: MCQ Seatwork no. 3

April 14, 2020

1. Gavin Co. grants all employees two weeks of paid vacation for each full year of employment. Unused vacation time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are taken or when employment is terminated. There was no employee turnover in 20X6. Additional information relating to the year ended December 31, 20X6 Liability for accumulated vacations at 12/31/X5 Pre-20X6 accrued vacations taken from 1/1/X6 to 9/30/X6 (the authorized period for vacations) Vacations earned for work in 20X6  (adjusted to current rates) P30,000

P35,000 P20,000

Gavin granted a 10% salary increase to all employees on October 1, 20X6, its annual salary increase date. For the year ended December 31, 20X6, Gavin should report vacation pay expense of. Solution: Liability for accumulated vacations at 12/21/20X5 Pre-2016 accrued vacation taken from 1/1/X6 To 9/30/X6 (the authorized period for vacations) Total Multiply by: income salary Increase in cost earlier periods owing to usage Increase in 2005 add:  Vacations earned for work in 20X6 VACATION PAY EXPENSE IN 2019

35,000 (20,000) 15,000 10% 1,5000 30,000 P31,5000 C

2. The following information pertains to Rik Co.’s two employees: Name

Weekly Salary

No. of weeks worked in 20X6

Vacation rights vest or accumulate

Ryan

800

52

YES

Todd

600

52

NO

Neither Ryan nor Todd took the usual two-week vacation in 20X6. In Rik’s December 31, 20X6, financial statements, what amount of vacation expense and liability should be reported? Solution: Weekly salary No. of week vacation VACATION EXPENSE

800 x2 P1,600 B

4. On January 1, 20X6, Baker Co. decided to grant its employees 10 vacation days and five sick days each year. Vacation days earned can be carried over to the next year but not sick days. Each employee took an average of three sick days in 20X6. During 20x6, each of Baker’s six employees earned P100 per day and earned 10 vacation days. These vacation days were taken during 20X7. What amount should Baker report for compensated absence expense for the year ended December 31, 20X6? Solution: No. of employees Multiply: Vacation days earned Multiply: Salary Earned per day COMPENSATED ABSENCE EXPENSE

6 10 100 P 6,000 B

5. North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 20X5, North’s unadjusted balance of liability for compensated absences was P21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31, 20X5. North’s employees earn an average of P100 per day. In its December 31, 20X5, balance sheet, what amount of liability for compensated absences is North required to report? a. 36,000

b. 22,500 c. 21,000

Solution: Estimated Vacation Day Available Multiply: Salary Earned per day COMPENSATED ABSENCE LIABILITY

d. 15,000

150

Problem 3 Exercise 1&2 (pg. 290)

100 P 15,000 D April 28, 2020

Seatwork No. 4 1. The actuarial valuation report of an entity shows the following information: Present value of defined benefit obligation, Jan. 1 Current service cost 50,000 Discount rate 11%

280,000

Benefits paid to retirees Actuarial Loss

120,000 50,000

Requirement: Compute for the balance of the present value of defined benefit obligation as of year-end. PV OF DEFINED BENEFIT OBLIGATION Benefits Paid to retirees Actuarial Gain

120,000

280,000 Jan.1 50,000 Current Service Cost 30,800 Interest Cost

50,000 190,800

P190,800 would be the balance of the present value of defined benefit obligation as of year-end.

2. The actuarial valuation report of an entity shows the following information: Present value of defined benefit obligation, Jan. 1 130,000 Current service cost 25,000 Discount rate 12% Benefits paid to retirees 110,000 Actuarial Loss 50,000 Requirement: Compute for the balance of the present value of defined benefit obligation as of year-end. PV OF DEFINED BENEFIT OBLIGATION Benefits Paid to retirees

110,000

130,000 Jan.1 25,000 Current Service Cost 15,600 Interest Cost (130,000 x 12%) 50,000 Actuarial Loss 110,000 220,600 110,600

P110,600 would be the balance of the present value of defined benefit obligation as of year-end.