Question

9.) Calculate the interest cost associated with the PBO for 2017 using the following information. Write the answer on the cover sheet. $ FACTS: The company has a defined benefit plan Harry's salary at the end of 2016 Retirement expected after Retirement period is expected to be Interest Rate 44,000 30 20 3.0% years of service years Benefits are calculated as a formula as the product of: Service already provided Percentage Final year's salary is projected to be 15 2.0% S 88,000

Answer 1

Ans:

Particulars	Amount ($)
Hurry’s salary at the end of 2016	44000
Rate of interest	3%
Interest costs (44000 x 3%)	1320

The question has asked use to calculate the interest cost of BPO for 2017. Since the salary of Harry at the end of 2016 is $44000 and the rate of interest is 3% per annum. It is clear that the interests cost of BPO for 2017 is the opportunity costs of Harry’s salary that could have been earned by the company from the salary amount. Thus, the interest cost of BPO for 2017 has been calculated as following:

(44000 x 3%) = $1320