Since 1977
THEORY OF ACCOUNTS
ToA.1822 Employee Benefits
REVIEW QUESTIONS
1. The objective of PAS 19 is to prescribe the accounting
and disclosure for employee benefits. The Standard
requires an entity to recognize:
a. A liability when an employee has provided service
in exchange for employee benefits to be paid in the
future.
b. An expense when the entity consumes the
economic benefit arising from service provided by
an employee in exchange for employee benefits.
c. Both a and b
d. Neither a nor b
2. 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.
c. Benefits that are payable after the completion of
employment.
d. Benefits other than short-term employee benefits,
post-employment benefits and termination
benefits.
3. Termination benefits are employee benefits provided in
exchange for the termination of an employees
employment as a result of:
a. An entitys decision to terminate an employees
employment before the normal retirement date.
b. An employees decision to accept an offer of
benefits in exchange for the termination of
employment.
c. Either a or b
d. Neither a nor b
4. Which of the following is a characteristic of a defined
benefit plan?
a. The entitys legal or constructive obligation is
limited to the amount that it agrees to contribute
to the fund.
b. The amount of the 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 entitys obligation may be
increased.
5. If a pension plan is non-contributory, who makes the
contributions?
a. Both the employer and employee
b. Only the employee
c. Only the employer
d. No one
Page 1 of 3 www.prtc.com.ph
PRTC CARES
MAY 2015
6. An entity contributes to an industrial pension plan that
provides a pension arrangement for its employees. A
large number of other employers also contribute to the
pension plan, and the entity makes contributions in
respect of each employee. These contributions are kept
separate from corporate assets and are used together
with any investment income to purchase annuities for
retired employees. The only obligation of the entity is
to pay the annual contributions. This pension scheme
is a
a. Multiemployer plan and a defined contribution
scheme
b. Multiemployer plan and a defined benefit scheme
c. Defined contribution plan only
d. Defined benefit plan only
7. The relationship between the amount funded and the
amount reported for pension expense in a defined
benefit plan is as follows:
a. Pension expense must equal the amount funded.
b. Pension expense will be less than the amount
funded.
c. Pension expense will be more than the amount
funded.
d. Pension expense may be greater than, equal to, or
less than the amount funded.
8. The deficit or surplus is:
a. The present value of the defined benefit obligation.
b. The fair value of plan assets.
c. The difference between a and b.
d. The total of a and b.
9. In accordance with the revised PAS 19, the asset
ceiling includes?
a. Unrecognized actuarial losses
b. Unrecognized past service cost
c. Present value of any economic benefits available in
the form of refunds from the plan or reductions in
future contributions to the plan.
d. All of the above.
10. Service cost excludes
a. Current service cost
b. Past service cost
c. Gain or loss on settlement
d. Actuarial gains and losses
11. Past service cost is
a. The increase in the present value of the defined
benefit obligation resulting from employee service
in the current period.
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).
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.
ToA.1822
EXCEL PROFESSIONAL SERVICES, INC.
d. The change during the period in the net defined
benefit liability (asset) that arises from the
passage of time.
12. An entity operates a defined benefit pension plan and
changes it to a defined contribution plan. The defined
benefit plan still relates to past service but not to
future service. The net pension liability after the plan
amendment is P70 million, and the net pension liability
before the amendment was P100 million. How should
the entity account for this change?
a. The entity recognizes a gain of P30 million
b. The entity does not recognize a gain
c. The entity recognizes a gain of P30 million over the
remaining service lives of the employees
d. The entity recognizes the gain but applies the 10%
corridor approach to it
13. An entity on December 31, 2014, changes its defined
benefit pension plan to a defined contribution plan. The
entity agrees with the employees to pay them P9
million in total on the introduction of a defined
contribution plan. The employees forfeit any pension
entitlement for the defined benefit plan. The pension
liability recognized in the balance sheet at December
31, 2014, was P10 million. How should this
curtailment be accounted?
a. A settlement gain of P1 million should be shown
b. The pension liability should be credited to reserves
and a cash payment of P9 million should be shown
in expense in the income statement
c. The cash payment should go to reserves and the
pension liability should be shown as a credit to the
income statement
d. A credit to reserves should be made of P1 million
14. 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 benefit liability (asset).
d. The change during the period in the net defined
benefit liability (asset) that arises from the
passage of time.
15. Which of these elements are taken into account when
determining the discount rate to be used?
a. Markets yields at the balance sheets dates on high-
quality corporate bonds
b. Investment or actuarial risk
c. Specific risk associated with the entity's business
d. Risk that future experiences may differ from
actuarial assumptions
16. In accordance with PAS 19, the discount rate used to
determine defined benefit cost reflects
a. Time value of money
b. Actuarial risk
c. Investment risk.
d. All of the above
17. Actuarial gains and losses are changes in the present
value of the defined benefit obligation resulting from:
a. Experience adjustments (the effects of differences
between the previous actuarial assumptions and
what has actually occurred).
b. The effects of changes in actuarial assumptions.
Page 2 of 3 www.prtc.com.ph
c. Both a and b
d. Neither a nor b
18. Which of these events will cause a change in a defined
benefit obligation?
I. Changes in mortality rates or the proportion of
employees taking early retirement.
II. Changes in the estimated salaries or benefits that
will occur in the future.
III. Changes in the estimate employee turnover.
IV. Changes on the discounted rate used to calculate
defined benefit liabilities and the value of assets.
a. I, II, III and IV c. I, II and IV
b. II and III d. II, III and IV
19. In accordance with the revised PAS 19, which of the
following can be deferred?
a. Actuarial gains and losses
b. Past service cost if not yet vested
c. Both a and b
d. Neither a nor b
20. In accordance with the revised PAS 19, which of the
following is reported in profit or loss?
a. Actuarial loss on defined benefit obligation
b. Actuarial gain on plan assets
c. Interest on the effect of asset ceiling
d. Gain or loss on routine settlements
21. In accordance with the revised PAS 19, which of the
following is not reported in profit or loss?
a. Gain or loss on non-routine settlements
b. Past service cost if not yet vested
c. Net interest on defined benefit asset.
d. None of the above
22. 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 entitys 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.
23. When an employee has rendered service to an entity
during an accounting period, the entity shall recognize
the undiscounted amount of short-term employee
benefits expected to be paid in exchange for that
service:
a. As a liability, after deducting any amount already
paid.
b. As an expense, unless another PFRS requires or
permits the inclusion of the benefits in the cost of
an asset.
c. Both a and b
d. Neither a nor b
ToA.1822
EXCEL PROFESSIONAL SERVICES, INC.
24. Which statement is incorrect regarding short-term paid
absences?
a. An entity may pay employees for absence for
various reasons including holidays, maternity or
paternity, sickness and short-term disability.
b. Accumulating paid absences are those that are
carried forward and can be used in future periods if
the current periods entitlement is not used in full.
c. An entity shall measure the expected cost of
accumulating paid absences as the additional
amount that the entity expects to pay as a result
of the unused entitlement that has accumulated at
the end of the reporting period.
d. An entity shall recognize the expected cost of
short-term employee benefits in the form of non-
accumulating paid absences when the employees
render service that increases their entitlement to
future paid absences.
DO-IT-YOURSELF (DIY) DRILL
1. Which statement is incorrect regarding recognition of
employee benefits?
a. The cost of providing employee benefits should be
recognized in the period in which the benefit is
earned by the employee, rather than when it is
paid or payable.
b. For short-term employee benefits, the
undiscounted amount of the benefits expected to
be paid in respect of service rendered by
employees in a period should be recognized in that
period.
c. For post-employment benefits, the cost to be
recognized in the period is the contribution payable
in exchange for service rendered by employees
during the period.
d. The enterprise should recognize the expected cost
of profit-sharing and bonus payments when, and
only when, it has a legal or constructive obligation
to make such payments as a result of past events
and a reliable estimate of the expected cost can be
made.
2. Which of the following statements characterizes
defined benefit plans?
a. They are comparatively simple in construction and
raise few accounting issues for employers.
b. Retirement benefits are based on the plan's
benefit formula.
c. Retirement benefits depend on how well pension
fund assets have been managed.
d. All of the above.
3. A pension liability is reported when
a. The defined benefit obligation exceeds the fair
value of pension plan assets.
b. The accumulated benefit obligation is less than the
fair value of pension plan assets.
c. The pension expense reported for the period is
greater than the funding amount for the same
period.
d. Accumulated other comprehensive income exceeds
the fair value of pension plan assets.
4. In determining the present value of the prospective
benefits (often referred to as the defined benefit
obligation), the following are considered by the
actuary:
z
a. Retirement and mortality rate.
Page 3 of 3 www.prtc.com.ph
25. A liability for compensated absences, for which it is
expected that employees will be paid, should
a. Be accrued during the period when the
compensated time is expected to be used by
employees.
b. Be accrued during the period following vesting.
c. Be accrued during the period when earned.
d. Not be accrued unless a written contractual
obligation exists.
26. An entity shall recognize a liability and expense for
termination benefits
a. When the entity can no longer withdraw the offer
of those benefits.
b. When the entity recognizes costs for a
restructuring that is within the scope of PAS 37
and involves the payment of termination benefits.
c. At the earlier of a or b.
d. At the later of a or b.
- now do the DIY drill -
b. Interest rates.
c. Benefit provisions of the plan.
d. All of these factors.
5. In all pension plans, the accounting problems include
allthe following except
a. Measuring the amount of pension obligation.
b. Disclosing the status and effects of the plan in the
financial statements.
c. Allocating the cost of the plan to the proper
periods.
d. Determining the level of individual premiums.
6. Vested benefits
a. Usually require a certain minimum number of
years of service.
b. Are those that the employee is entitled to receive
even if fired.
c. Are not contingent upon additional service under
the plan.
d. Are defined by all of these.
7. An entity has decided to improve its defined benefit
pension scheme. The benefit payable will be
determined by reference to 60 years service rather
than 80 years service. As a result, the defined benefit
pension liability will increase by P10 million. The
average remaining service lives of the employees is 10
years. How should the increase in the pension liability
by P10 million be treated in the financial statements?
a. The past service cost should be charged against
retained profit
b. The past service cost should be charged against
profit or loss for the year
c. The past service cost should be spread over the
remaining working lives of the employees
d. The past service cost should not be recognized
8. Which of these assets should be included within the
valuation of the plan assets?
a. Unpaid contributions
b. Unlisted corporate bonds that are redeemable but
not transferable without the entity's permission
c. A loan to the entity that cannot be assigned to a
third party
d. Investments in listed companies
- end of ToA.1822 -
ToA.1822