Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows: ($ millions) $ 630 450 100 80 PBO balance, January 1 Plan assets balance, January 1 Service cost Interest cost Gain from change in actuarial assumption Benefits paid Actual return on plan assets Contributions 2018 34 (66) 28 The expected long-term rate of return on plan assets was 8%. There were no AOCI balances related to pensions on January 1, 2018, but at the end of 2018, the company amended the pension formula creating a prior service cost of $19 million. Assume Electronic Distribution prepares its financial statements according to International Financial Reporting Standards (IFRS). Also assume that 10% is the current interest rate on high-quality corporate bonds.

Answer 1

Electronic Distribution Requirement 1 Requirement 2 ($ millions) 100 Debit in $ Credit in $ Service cost Interest cost Expected return on the plan assets ($28 actual, plus $8 loss) Amortization of prior service cost Amortization of net gain or net loss-AOCI Pension expense Journal Enteries Date Particulars To record the pension expense Pension expense a/c Dr. Plan assets a/c Dr. To PBO 144 36 180 144 450 x 8% = 36 To record the prior service cost Prior service cost - OCI a/c Dr. То РВО 19 Requirement 3 ($ millions) 630 100 To record the gain on OCI PBO a/c To Gain - oci Dr. 80 PBO balance, January 1 Service cost Interest cost Gain from change in actuarial assumption Prior service cost (new) Benefits paid PBO balance, December 31 To record the loss on OCI Loss - OCI a/c To Plan assets Dr. -66 729 To record the funding Plan assets a/c To Cash Dr. 90 Plan assets balance, January 1 Actual return on plan assets Contributions 2018 Benefits paid Plan assets balance, December 31 ($ millions) 450 28 90 -66 502 To record the payment of benefits PBO a/c Dr. To Plan assets Because the plan is underfunded, Electronic Distribution will report a net pension liability: ($ millions) PBO balance, December 31 729 Plan assets balance, December 31 -502 Net pension liability 227