Question

1. W Company’s actuary and trustee reports indicate the following changes in the PBO and plan assets during 2018:

              

Prior service cost at Jan. 1, 2018, from plan amendment at the beginning of 2015 (amortization: $4 million per year)	$68 million
Net gain-AOCI at Jan.1, 2018	$40 million
Average remaining service life of the active employee group	15 years
Actuary's discount rate	5%
Gain from changes in actuarial assumptions	$5 million
Pension Expense for 2018	$33.5 million

($ in millions)	PBO			PLAN ASSETS
Beginning of 2018	$240		Beginning of 2018	$250
Service cost	41		Return on plan assets, 8% (9% expected)	20
			Cash contributions	35

Required:

1. Prepare the appropriate journal entries to record the expense as well as the cash contribution to plan assets.
2. Prepare the appropriate journal entries to record any 2018 gains and losses.
3. If someone asked you where to find the pension on Sporting’s balance sheet at the beginning of 2018, where and for what amount should they look?

Answer 1

Service Cost
Current Service Cost	41.00
Past Service Cost - amortised	4.00
Interest Cost on PBO @ 5%	12.00
Expected Return on Plan Assets @ 9%	(22.50)
Pension expense for 2018	33.50
Service Cost	68.00
Remeasurement of Net Defined Benefit Liability
Acturial Gain	5.00
Return on Plan Assets	20.00
Total	25.00
Plan Assets
Opening Balance	250.00
Return on Plan Assets	20.00
Cash contributions	35.00
Total Balance	305.00
Present Value @ 9% for 15 years	83.73
PBO
Opening Balance	240.00
Interest @ 5%	12.00
Current Service Cost	41.00
Past Service Cost	4.00
Actuarial Gain	(5.00)
Total Balance	292.00
Present Value @ 9% for 15 years	80.17
Surplus (PV of PBO - PV of Plan Assets)	(3.57)

	Journal
	In the books of W Company's
S No	Particulars	Dr/Cr.	Dr ($m)	Cr ($m)
a	Plan Assets A/c	Dr	35.00
	To Bank A/c	Cr		35.00
	(Being contribution made to Plan Assets)
S No	Particulars	Dr/Cr.	Dr ($m)	Cr ($m)
a	Pension Expense A/c	Dr	68.00
	To Pension Liability A/c			64.00
	To OCI - Prior service cost A/c	Cr		4.00
	(Being expenses recorded)
S No	Particulars	Dr/Cr.	Dr ($m)	Cr ($m)
b	Pension Liability A/c	Dr	3.57
	To Surplus A/c (PV of PBO - PV of Plan Assets)			3.57
	(Being surplus recorded)
c. The amount of pension shall come under Liabilities head under Pension Payable