Homework Week 6 & 7

CH 20: Accounting for Pensions and Postretirement Benefits

Vania Eka Rachmadani | 143221080 | Kelas L

E20.1 (LO 1) (Pension Expense, Journal Entry)

The following information is available for the pension plan of Radcliffe Company for the year
2022.
Interest revenue on plan assets $15,000
Benefits paid to retirees 40,000
Contributions (funding) 90,000
Discount (interest) rate 10%
Defined benefit obligation, January 1, 2022 500,000
Service cost 60,000

Instructions
a. Compute pension expense for the year 2022.
Answer:
Service cost $60,000
Interest expense ($500,000 × 10%) 50,000
Expected return on plan assets (15,000)
Pension expense for 2022 $95,000
b. Prepare the journal entry to record pension expense and the employer’s contribution to
the pension plan in 2022
Answer:

Pension Expense $95,000

Cash $90,000
Pension Asset/Liability $5,000

E20.6 (LO 2,3) (Basic Pension Worksheet, Past Service Costs)

The following defined pension data of Yang Ltd. apply to the year 2022 (amounts in
thousands).
 Defined benefit obligation, 1/1/22 (before amendment) ¥560,000
Plan assets, 1/1/22 546,200
Pension liability 13,800
On January 1, 2022, Yang Ltd., through plan amendment, 120,000
grants past service benefits having a present value of
Discount (interest) rate 9%
Service cost 58,000
Contributions (funding) 65,000
Actual return on plan assets 49,158
Benefits paid to retirees 40,000

Instructions
For 2022, prepare a pension worksheet for Yang Ltd. that shows the journal entry for pension
expense and the year-end balances in the related pension accounts.
Answer:

General Journal Entries Memo Record

Annual Defined
OCI- Pension Asset/
Pension Cash Benefit Plan Assets
Gain/Loss Liability
Items Expense Obligation
Balance, December 31, 2021 (13.800) (560.000) 546.200
Past Service costs 120.000 (120.000)
Balance, January 1, 2022 (680.000) 546.200
Service Cost 58.000 (58.000)
Interest Expense* 61.200 (61.200)
Interest Revenue** (49.158) 49.158
Contribution (65.000) 65.000
Benefit 40.000 (40.000)

Journal entry for 2022 190.042 (65.000) 0 125.042

Balance, Dec 31, 2022 (138.842) (759.200) 620.358

* Interest expense = 9% x $680,000 = $61,200

** Interest revenue = 9% x $546,200 = $49,158

Journal entries for 2022

Pension expense $190.042
Cash $65.000
Pension Asset/ liability $125.042
P20.1 (LO 2, 4, 5) (2-Year Worksheet)

On January 1, 2022, Harrington SA has the following defined benefit pension plan balances

Defined benefit obligation €4,500,000

Fair value of plan assets 4,200,000

The interest rate applicable to the plan is 10%. On January 1, 2023, the company amends its
pension agreement so that past service costs of €500,000 are created. Other data related to the
pension plan are as follows.

2022 2023
Service cost €150,000 €180,000
Contributions (funding) to the plan 240,000 285,000
Benefits paid 200,000 280,000
Actual return on plan assets 420,000 260,000

Instructions:
a. Prepare a pension worksheet for the pension plan for 2022 and 2023.
Answer:
General Journal Entries Memo Record
Annual Defined
OCI- Pension Asset/
Pension Cash Benefit Plan Assets
Gain/Loss Liability
Items Expense Obligation
Balance, January 1, 2022 (300.000) (4.500.000) 4.200.000
Service cost 150.000 (150.000)
Interest Expense* 450.000 (450.000)
Interest Revenue** (420.000) 420.000
Contribution (240.000) 240.000
Benefit 200.000 (200.000)
Journal entry for 2022 180.000 (240.000) (60.000)
Balance, Dec 31, 2022 (240.000) (4.900.000) 4.660.000
Additional PSC 500.000 (500.000)
Balance, January 1, 2023 (5.400.000) 4.660.000
Service cost 180.000 (180.000)
Interest Expense*** 540.000 (540.000)
Interest Revenue**** (466.000) 466.000
Contribution (285.000) 285.000
Benefit 280.000 (280.000)
Asset loss***** 206.000 (206.000)
Journal entry for 2022 754.000 (285.000) 206.000 675.000
Balance, Dec 31, 2022 (915.000) (5.840.000) 4.925.000

* Interest expense = 10% x 4,500,000 = 450,000

** Interest revenue = 10% x 4,200,000 = 420,000
*** Interest expense = 10% x 5,400,000 = 540,000
**** Interest revenue = 10% x 4,660,000 = 466,000
***** Asset loss = Actual return on plant assets - interest expense = 466,000 - 260,000 = 206,000
 b. For 2023, prepare the journal entry to record pension-related amounts
Answer:
Pension Expense €754,000
Other Comprehensive Income (G/L) €206,000
Cash €285,000
Pension Asset/Liability €285,000

P20.14 (LO 6) (Postretirement Benefit Worksheet-2 Years)

Elton AG has the following postretirement benefit plan balances on January 1, 2022.

Defined benefit obligation €2,250,000

Fair value of plan assets 2,250,000
The discount (interest) rate applicable to the plan is 10%. On January 1, 2023, the company
amends the plan so that past service costs of €175,000 are created. Other data related to the
plan are as follows.

2022 2023
Service cost €75,000 €85,000
Contributions (funding) to the plan 45,000 35,000
Benefits paid 40,000 45,000
Actual return on plan assets 140,000 120,000

Instructions:
a. Prepare a worksheet for the postretirement plan in 2022.
Answer:
 General Journal Entries Memo Record
Annual Defined
OCI- Pension Asset/
Pension Cash Benefit Plan Assets
Gain/Loss Liability
Items Expense Obligation
Balance, January 1, 2022 - (2.250.000) 2.250.000
Service costs 75.000 (75.000)
Interest expense* 225.000 (225.000)
Interest revenue** (225.000) 225.000
Contributions (45.000) 45.000
Benefits 40.000 (40.000)
Asset loss*** 85.000 (85.000)

Journal entry for 2022 75.000 (45.000) 85.000 115.000

Balance, Dec 31, 2022 (115.000) (2.510.000) 2.395.000

* Interest expense = 10% x 2,250,000 = 225,000

** Interest revenue = 10% x 2,250,000 = 225,000
***Asset loss = Actual return on plan assets - interest revenue = = 140.000 - 225.000 = 85.000

b. Prepare any journal entries related to the postretirement plan that would be needed at
December 31, 2022.
Answer:
Postretirement Expense €75,000
Other Comprehensive Income (G/L) €85,000
Cash €45,000
Postretirement Asset/Liability €115,000

c. Prepare a worksheet for 2023 and any journal entries related to the postretirement plan
as of December 31, 2023.
Answer:
General Journal Entries Memo Record
Annual Defined
OCI- Pension Asset/
Pension Cash Benefit Plan Assets
Gain/Loss Liability
Items Expense Obligation
Balance, December 31, 2022 85.000 (115.000) (2.510.000) 2.395.000
Additional PSC 175.000 (175.000)
Balance, January 1, 2023 (2.685.000) 2.395.000
Service costs 85.000 (85.000)
Interest expense* 268.500 (268.500)
Interest revenue** (239.500) 239.500
Contributions (35.000) 35.000
Benefits 45.000 (45.000)
Asset loss*** 119.500 (119.500)

Journal entry for 2022 289.000 (35.000) 119.500 373.500

Accumulated OCI, December 31, 2022 85.000
Balance, Dec 31, 2022 204.500 (488.500) (2.993.500) 2.505.000

* Interest expense = 10% x 2,685,000 = 268,500

** Interest revenue = 10% x 2,395,000 = 239,500
***Asset loss = Actual return on plan assets - interest revenue = = 239,500 - 120,000 = 119,500

Journal entries December 31, 2023

 Postretirement Expense €289,000
Other Comprehensive Income (G/L) €119,500
Cash €35,000
Postretirement Asset/Liability €373,500

d. Indicate the postretirement-benefit–related amounts reported in the 2023 financial

statements.
Answer:
Elton AG
Income Statement
Dec 31, 2023
Postretirement Expense €289,000

Elton AG
Comprehensive Income Statement
Dec 31, 2023
Net income €XXXXX
Other Comprehensive Income (loss)
Asset gain (loss) (€119,500)
Comprehensive Income €XXXXX

Elton AG
Statement of Financial Position
Dec 31, 2023
Liabilities
Postretirement Liability €488,500
Equity
Accumulated Other Comprehensive Loss (G/L) €204,500
Using Your Judgment
Financial Reporting Problem
Marks and Spencer plc (M&S)
The financial statements of M&S (GBR) are presented in Appendix A. The company’s
complete annual report, including the notes to the financial statements, is available online.
Instructions:
Refer to M&S’s financial statements and the accompanying notes to answer the following
questions.
a. What kind of pension plan does M&S provide its employees?
Answer: Program pensiun yang didanai tersedia untuk karyawan di Inggris dan
beberapa karyawan M&S di luar negeri. M&S menyediakan pengaturan pensiun untuk
keuntungan karyawannya di Inggris melalui Marks & Spencer UK Pension Scheme
(DB arrangement) dan Your M&S Pension Saving Plan (Define Contribution (DC)
arrangement). M&S juga mengoperasikan small funded DB pension scheme di
Republik Irlandia. Manfaat pensiun lainnya juga termasuk post-retirement healthcare
di Inggris dan unfunded retirement benefits.

b. What was M&S’s pension expense for 2019 and 2018?

Answer: Total beban pension pada tahun 2019 adalah £77,4 juta. Sedangkan, untuk
beban pension tahun 2018 adalah sebesar £76,7 juta.
c. What is the impact of M&S’s pension plans for 2019 on its financial statements?
Answer: Pada tanggal 30 Maret 2019, surplus manfaat pensiun bersih IAS 19 adalah
sebesar £914,3 juta (tahun penuh sebelumnya sebesar £948,2 juta). Surplus IAS 19
mencakup yang pertama, yaitu hak kemitraan atas aset program, senilai £278,5 juta
(catatan 11). Sehingga, M&S Pension Plans tahun 2019 berdampak pada perubahan
aset manfaat pensiun bersih sebesar £923,4 juta (2018: £959,7 juta), yang terdiri dari
bersih dari aset program sebesar £10.224,7 juta (2018: £9.989,3 juta) dan liabilitas
program sebesar £9.301,3 juta (2018: £9.029,6 juta). Sebesar £9.175,1 juta dari
liabilitas ini terkait dengan skema Inggris (2018: £8.907,6 juta). Selain itu, Pension
Plans juga berdampak pada laba operasional perusahaan turun 10,4% menjadi £601,0
juta.

d. What information does M&S provide on the target allocation of its pension assets? How
do the allocations relate to the expected returns on these assets?
Answer:
 Secara umum, tingkat pengembalian jangka panjang yang diharapkan dari aset-aset ini
meningkat dengan meningkatnya risiko aset seperti yang telah diungkapkan dalam
catatan kaki diatas.

Comparative Analysis Case

adidas and Puma
The financial statements of adidas (DEU) and Puma (DEU) are presented in Appendices B and
C, respectively. The complete annual reports, including the notes to the financial statements,
are available online.
Instructions:
Use the companies’ financial information to answer the following questions related to adidas
and Puma.
a. What kind of pension plans do adidas and Puma provide their employees?
Answer: Mengingat struktur perusahaan yang beragam, terdapat defined benefit
pension plans yang berbeda, yang terdiri dari berbagai pengaturan post-employment
benefit.
• Defined benefit pension plans utama perusahaan terkait dengan Adidas AG dan
anak perusahaannya di Inggris dan Korea Selatan. Defined benefit pension plans
pasti umumnya memberikan pembayaran dalam hal kematian, cacat atau pensiun
kepada mantan karyawan. Program pensiun adidas adalah berupa matching
contribution plan dimana iuran untuk program pensiun ini sebagian dibayar oleh
karyawan dan sebagian dibayar oleh pemberi kerja.
• Pension commitment PUMA mencakup komitmen pensiun berbasis manfaat dan
iuran, serta mencakup kewajiban pensiun saat ini dan hak pensiun yang harus
dibayarkan di masa depan. Hak pensiun dibiayai oleh provisi dan dana
b. What net periodic pension expense (cost) did adidas and Puma report in 2018?
Answer:
Beban pensiun Adidas : €107 juta
Beban pensiun Pums : €7,7 juta

Adidas Puma

c. What is the year-end 2018 funded status of adidas’s and Puma’s plans?
Answer:
• Adidas
 Status dana akhir tahun 2018 adidas sebesar €212 juta dan mengalami penurunan
dari tahun sebelumnya karena nilai wajar plan assets (€303 juta) lebih kecil
daripada PV of funded obligation from defined benefit pension plans (€515 juta).

• Puma
Status dana akhir tahun 2018 Puma sebesar €28,9 juta dan mengalami penurunan
dari tahun sebelumnya karena nilai wajar plan assets (€56,9 juta) lebih kecil
daripada PV of funded obligation from defined benefit pension plans (€85,8 juta).

d. What relevant rates were used by adidas and Puma in computing their pension amounts?
Answer:
Relevant Rate Adidas Puma
Discount rate 2,3% 2,41%
Rate of Salary 3,6% 1,7%
Expected Pension 1,7% 2,31%

e. Compare the benefit payments and contributions for adidas and Puma.
Answer:
• Pada tahun 2018, Adidas membayar benefit payment sebesar €54 miliar dan
memberikan kontribusi untuk program pensiun sebesar €74 miliar.
• Pada tahun 2018, Puma membayar benefit payment sebesar €7,7 miliar dan
memberikan kontribusi sebesar €12,5 miliar untuk program pensiun.