Selected Solutions from Chapter 19

EXERCISE 19-2

(a) Pension Expense............................................... 135,000

([$2,000 x 40] + [$1,000 x 55]) = $135,000

(b) Pension Expense............................................... 135,000

Employee Pension Contributions Payable 35,000
Cash.......................................................... 170,000

Employer portion: ([$2,000 x 40] + [$1,000 x 55]) = $135,000

Employee contribution: ([$2,000 x 10] + [$1,000 x 15]) = $35,000 (the $35,000 would have
been included as a payable at the time that the related Salaries and Wages Expense was
calculated).
EXERCISE 19-3 (15-20 minutes)

(a) Defined benefit obligation, 1/1/17 $2,000,000

Interest cost ($2,000,000 X10%) 200,000
Current service cost 235,000
Past service 50,000
Benefits paid (100,000)
Defined benefit obligation, 12/31/17 $2,385,000

(b) Plan assets, 1/1/17 $1,600,000

Actual return on plan assets 160,000
Contribution into plan 262,500
Benefits paid (100,000)
Plan assets, 12/31/17 $1,922,500

(c) Pension expense, 2017

Current service cost $235,000
Past service cost

50,000
Net interest/finance cost
($2,000,000 – $1,600,000) x 10% 40,000
Pension expense for 2017 $325,000
(d) Pension Expense.......................................... 325,000
Net Defined Benefit Liability/Asset...... 325,000

(Note: there are no actuarial gains or losses in 2017 related to the DBO or the plan assets, so
there are no remeasurement gains or losses to recognize in OCI)

Net Defined Benefit Liability/Asset.............. 262,500

Cash......................................................... 262,500
 EXERCISE 19-3 (CONTINUED)

(e) Net defined benefit liability/(asset), 1/1/17 $ 400,000

Contribution (262,500)
Pension expense 325,000
Net defined benefit liability/(asset), 12/31/17 $ 462,500

Alternatively, the amount could also be reconciled as follows:

Defined benefit obligation $(2,385,000)

Plan assets at fair value  1,922,500
DBO in excess of plan assets (plan deficit)  $(462,500 )

EXERCISE 19-5 (25-30 minutes)

(a) Assumes the company applies IFRS and has a significant plan surplus and current period
remeasurement gain prior to the following events in the current year:

Defined Pension plan Plan Pension Remeasur-

benefit assets surplus expense ement
obligation Gain (OCI)
Current service cost I NE D I NE
Actual return on plan NE I I NE I
assets is expected based
on DBO discount rate
(assess only the impact of
the difference between the
actual return and the
expected return here)
Past service costs due to I NE D I NE
plan revision
Liability actuarial gain D NE I NE I
Liability actuarial loss I NE D NE D
Employer contributions on NE I I NE NE
last day of fiscal year
Benefits paid to retirees on D D NE NE NE
last day of fiscal year
An increase in the average I NE D NE D
life expectancy of
employees

(b) Assuming the company uses ASPE instead of IFRS, all the answers to the DBO, plan assets,
and plan surplus columns would not change. In the pension expense column, differences
will exist between the ASPE answer and the IFRS answer only where the remeasurement
gain (OCI) is affected. This is because ASPE recognizes the items directly in pension
expense on the income statement, while IFRS splits the effects between the income
statement expense account and its OCI account. When the last two IFRS columns are netted
together, the net result is the same as the ASPE solution.
EXERCISE 19-6 (5-10 minutes)

Calculation of Actual Return on Plan Assets

Fair value of plan assets at 12/31/17 $1,586,875

Fair value of plan assets at 1/1/17  1,438,750
Increase in fair value of plan assets    148,125
Deduct: Contributions to plan during 2017 $212,500
Less: benefits paid during 2017  218,750   6,250
Actual return on plan assets for 2017 $ 154,375
EXERCISE 19-9 (30-35 minutes)

(a) Defined benefit obligation, 1/1/17 $420,000

Past service cost, effective 1/1/17 60,000
480,000
Interest cost ($480,000 x 9%) 43,200
Current service 43,500
Benefits paid (35,000)
DBO, 12/31/17 $531,700

(b) Plan assets, 1/1/17 $409,650

Actual return on plan assets 39,210
Contributions 41,250
Benefits paid (35,000)
Plan assets, 12/31/17 $455,110

(c) Pension expense 2017:

Current service cost $ 43,500
Net interest/finance cost
($480,000 - $409,650) x 9% 6,332
Remeasurement gain on assets:
Actual return $(39,210)
Included in net interest/finance
cost above 9% x $409,650 36,868 (2,342)
Past service cost 60,000
 $107,490

Pension Expense.......................................... 107,490

Net Defined Benefit Liability/Asset....... 107,490
Additionally, though not required, the entry to record the company’s 2017 contribution:

Net Defined Benefit Liability/Asset.............. 41,250

Cash......................................................... 41,250
EXERCISE 19-9 (CONTINUED)

(d) Net defined benefit liability, January 1, 2017 $ 10,350 Cr.

2017 pension expense recognized 107,490 Cr.
Funding contributions, 2017 41,250 Dr.
Net defined benefit liability, December 31, 2017 $76,590 Cr.

(e) Plan’s Surplus/Deficit

DBO, 12/31/17 $531,700
Plan assets, 12/31/17 455,110
Plan deficit, a net obligation, 12/31/17 $ 76,590
Net defined benefit liability, 12/31/17 from (d) $ 76,590 Cr.

(f) In this case, the components making up the pension expense should be disclosed,
especially those related to past service costs and the difference between the actual return on
the plan assets and the return calculated using the discount rate in the net interest/finance
calculation. Users of financial statements analyze the reported income statement amounts as
information useful in predicting the potential for future returns and cash flows. Therefore,
information about any expenses that are not recurring in nature is relevant information
because this may affect user predictions.

Users recognize that the returns on plan assets in any one year will vary from the long-run
expected returns used in the actuarial calculations, often by substantial amounts. Therefore,
the difference between the actual return in any year and the discount rate (the asset gain in
this case) is not considered to be a recurring item. In addition, plan amendments are not
considered to be annually recurring costs. For this reason, these components of pension
expense, as well as other non-recurring items such as other actuarial gains and losses, are
required to be separately disclosed. The remaining components of pension expense are
recurring in nature.
EXERCISE 19-10 (10-15 minutes)

(a) Calculation of pension expense under IFRS:

Service cost $65,000
Net interest cost/finance cost:
($500,000 - $400,000) X 8% 8,000
Pension expense for 2017 $73,000

Remeasurement loss on assets:

(8% X $400,000) - $17,000 actual return = $15,000

Pension Expense............................................. 73,000

Remeasurement loss (OCI) 15,000
Net Defined Benefit Liability/Asset......... 88,000

Net Defined Benefit Liability/Asset................ 95,000

Cash.......................................................... 95,000

(b) Calculation of pension expense under ASPE:

Service cost $ 65,000
Net interest/finance cost:
($500,000 - $400,000) X 8% 8,000
Remeasurement loss on assets:
Using discount rate: 8% X $400,000 = $32,000
Actual return ( 17,000) 15,000
Pension expense for 2017 $ 88,000
 Pension Expense............................................. 88,000
Net Defined Benefit Liability/Asset......... 88,000

Net Defined Benefit Liability/Asset................ 95,000

Cash.......................................................... 95,000

EXERCISE 19-21 (25-35 minutes)

(a) Pension expense:

Current service cost $86,000

Net interest/finance cost:
8% X ($1,030,000 - $950,000) 6,400
Pension expense – 2017 $92,400

In addition, as needed for part (b):

Remeasurement loss (OCI):

Asset remeasurement loss
Actual return on assets $56,000
Return included in pension expense
8% X $950,000 76,000 $20,000
Actuarial loss on DBO 29,000
 $49,000
(b) Entries:
(c)
Pension Expense........................................... 92,400
(d) Net Defined Benefit Liability/Asset.............. 92,400
(e)
Remeasurement Loss (OCI)......................... 49,000
(f) Net Defined Benefit Liability/Asset ............. 49,000
(g)
Net Defined Benefit Liability/Asset.............. 175,000
(h) Cash......................................................... 175,000
EXERCISE 19-21 (CONTINUED)

(i) Defined Benefit Obligation:

January 1, 2017 $1,030,000
Current service cost 86,000
Interest cost 8% X $1,030,000 82,400
Actuarial loss, end of year 29,000
Benefits paid (75,000)
December 31, 2017 $1,152,400

Plan Assets:
January 1, 2017 $ 950,000
Actual return 56,000
Contributions into plan assets 175,000
Benefits paid (75,000)
December 31, 2017 $1,106,000

Plan deficit:
January 1: $1,030,000 - $950,000 $80,000
December 31: $1,152,400 - $1,106,000 $46,400

Net defined benefit liability/asset:

January 1, 2017 (= plan deficit), credit $ 80,000
Expense entry, 2017, credit 92,400
Remeasurement loss entry, credit 49,000
Contribution entry, debit (175,000)
December 31, 2017, credit $ 46,400
(same as plan deficit, December 31, 2017)

PROBLEM 19-3
PROBLEM 19-3 (CONTINUED)

(b) Continuity of Defined Benefit Obligation – 2017

Defined benefit obligation, 1/1/17 $460,000

Current service cost 36,800
Interest cost ($460,000 x 10%) 46,000
Benefits paid out (32,200)
Defined benefit obligation, 12/31/17 $510,600

Continuity of Defined Benefit Obligation – 2018

Defined benefit obligation, 1/1/18 $510,600

Past service cost, 1/1/18 368,000
878,600
Current service cost 43,700
Interest cost ($878,600 x 10%) 87,860
Benefits paid out (37,720
Defined benefit obligation, 12/31/18 $972,440

Continuity of Defined Benefit Obligation – 2019

Defined benefit obligation, 1/1/19 $972,440

Current service cost 59,800
Interest cost ($972,440 x 10%) 97,244
Benefits paid out (48,300)
Actuarial loss, end of year 114,816
Defined benefit obligation, 12/31/19 $1,196,000

*$114,816 = $1,196,000 - $972,440 - $59,800 - $97,244 + $48,300

PROBLEM 19-3 (CONTINUED)

(c) Continuity of Fund Assets – 2017

Plan assets, 1/1/17 $460,000

Actual return on plan assets 39,100
Contributions 36,800
Benefits paid out (32,200
Plan assets, 12/31/17 $503,700

Continuity of Fund Assets – 2018

Plan assets, 1/1/18 $503,700

Actual return on plan assets 50,370
Contributions ($43,700 + $69,000) 112,700
Benefits paid out (37,720
Plan assets, 12/31/18 $629,050

Continuity of Fund Assets – 2019

Plan assets, 1/1/19 $629,050

Actual return on plan assets 55,200
Contributions ($59,800 + $80,500) 140,300
Benefits paid out (48,300
Plan assets, 12/31/19 $776,250
PROBLEM 19-3 (CONTINUED)

(d) Pension expense – 2017

Current service cost $ 36,800

Net interest/finance cost:
10% ($460,000 - $460,000) -0-
$ 36,800

Pension expense – 2018

Current service cost $ 43,700

Net interest/finance cost:
10% ($878,600 - $503,700) 37,490
Past service cost 368,000
$449,190

Pension expense – 2019

Current service cost $ 59,800

Net interest/finance cost:
10% ($972,440 - $629,050) 34,339

$94,139
(e) Journal entries:
2017
Pension Expense................................................ 36,800
Remeasurement Loss (OCI)............................... 6,900*
Net Defined Benefit Liability/Asset.............. 43,700

Net Defined Benefit Liability/Asset...................... 36,800

Cash............................................................ 36,800

*$6,900 = ($460,000 X 10%) – $39,100

PROBLEM 19-3 (CONTINUED)

(e) (continued)
2018
Pension Expense................................................449,190
Net Defined Benefit Liability/Asset.............. 449,190

Net Defined Benefit Liability/Asset......................112,700

Cash............................................................ 112,700

2019
Pension Expense................................................ 94,139
Remeasurement Loss (OCI)...............................122,521**
Net Defined Benefit Liability/Asset.............. 216,660

Net Defined Benefit Liability/Asset......................140,300

Cash............................................................ 140,300

**$122,521 = ($629,050 X 10%) – $55,200 + $114,816

**Note: the remeasurement gains and losses taken to OCI do not

get recycled into net income at a later date.**

(f) Reconciliation Schedule 2017

Defined benefit obligation (510,600)
Fair value of plan assets   503,700
Defined benefit obligation in excess of plan
   assets (plan deficit), and net defined benefit
(liability)/asset   $(6,900)

Reconciliation Schedule 2018

Defined benefit obligation $(972,440)
Fair value of plan assets   629,050
Defined benefit obligation in excess of plan
   assets (plan deficit), and net defined benefit
(liability)/asset  $(343,390)
PROBLEM 19-3 (CONTINUED)
(f) (continued)
Reconciliation Schedule 2019
Defined benefit obligation $(1,196,000)
Fair value of plan assets   776,250
Defined benefit obligation in excess of plan
   assets (plan deficit), and net defined benefit
(liability)/asset $(419,750)

(g) Pension expense – 2017

Current service cost $ 36,800

Net interest/finance cost:
10% ($460,000 - $460,000) -0-
Asset remeasurement loss ($46,000 - $39,100) 6,900
$ 43,700

Pension expense – 2018

Current service cost $ 43,700

Net interest/finance cost:
10% ($510,600 + $368,000 - $503,700) 37,490
Asset remeasurement loss ($50,370 - $50,370) -0-
Past service cost 368,000
$ 449,190

Pension expense – 2019

Current service cost $ 59,800

Net interest/finance cost:
10% ($972,440 - $629,050) 34,339
Asset remeasurement loss ($62,905 - $55,200)7,705
Actuarial loss on DBO 114,816

$ 216,660
19-3 (CONTINUED)
(g) (continued)

Potential investors would be most interested in seeing the

components of pension expense so they can determine which
components are replicable or recurring in nature. They would
also be very interested in seeing the surplus or deficit position of
the plan and how it changes from year to year. The higher the
deficit, the higher the risk to investors. Another important
disclosure would be the amount of cash that would likely have to
be committed to fund the plan each year going forward. The
estimates used in discount calculations would be useful as this
can make a significant difference in the DBO, current service
cost, and interest calculations involving pension plans. More of
this information is required to be provided under IFRS. However,
under ASPE, past service costs and remeasurement gains and
losses on the plan assets and DBO are considered
remeasurements that should either be presented separately on
the income statement or disclosed in the notes to the financial
statements. Also, it is assumed that users of the financial
statements of smaller private entities using ASPE have greater
access to required information from management.
 PROBLEM 19-4

(a) ASPE: At January 1, 2017, note that the balance of the net
defined benefit liability on the opening statement of financial
position will be equal to the plan surplus or deficit at that date.
The net defined benefit liability, therefore, was $175,000 -
$165,000 = $10,000 cr.

2017
Defined benefit obligation, 1/1/17 $175,000
Past service cost, 1/1/17 78,000
253,000
Interest cost ($253,000 x 7%) 17,710
Current service cost 35,000
Benefits paid (24,000)
DBO, 12/31/17 $281,710

Plan assets, 1/1/17 $165,000

Actual return on plan assets ($165,000 x 8%) 13,200
Contributions—plan funding 44,000
Benefits paid (24,000)
Plan assets, 12/31/17 $198,200

Plan deficit, Dec. 31/17, and the balance of the

Net Defined Benefit Liability at Dec. 31/17
[see proof in part (b)] $83,510

2018
Defined benefit obligation, 1/1/18 $281,710
Interest cost ($281,710 x 7%) 19,720
Current service cost 47,250
Benefits paid (26,000)
DBO, 12/31/18 $322,680

Plan assets, 1/1/18 $198,200

Actual return on plan assets ($198,200 x 6%) 11,892
Contributions 44,000
Benefits paid (26,000)
Plan assets, 12/31/18 $228,092
(a) (continued)

2018 (continued)

Plan deficit, Dec. 31/18, and the balance of the

Net Defined Benefit Liability at Dec. 31/18
[see proof in part (b)] $94,588

2019
Defined benefit obligation, 1/1/19 $322,680
Interest cost ($322,680 x 7%) 22,588
Current service cost 52,500
Benefits paid (28,000)
DBO, 12/31/19 $369,768

Plan assets, 1/1/19 $228,092

Actual return on plan assets ($228,092 x 7%) 15,966
Contributions 44,000
Benefits paid (28,000)
Plan assets, 12/31/19 $260,058

Plan deficit, Dec. 31/19, and the balance of the Net

Defined Benefit Liability at Dec. 31/19
[see proof in part (b)] $109,710

PROBLEM 19-4 (CONTINUED)

(b) Pension expense 2017:

Current service cost $ 35,000
Net interest/finance cost:
 7% ($253,000 - $165,000) 6,160
Asset remeasurement loss:
(7% X $165,000) – (8% X $165,000) (1,650)
Past service cost incurred in year 78,000
$117,510

Pension expense 2018:

Current service cost $47,250
Net interest/finance cost:
7% X ($281,710 - $198,200) 5,846
Asset remeasurement loss:
(7% X $198,200) – (6% X $198,200) 1,982
$ 55,078

Pension expense 2019:

Current service cost $52,500
Net interest/finance cost:
7% X ($322,680 - $228,092) 6,622
Asset remeasurement loss:
(7% X $228,092) – (7% X $228,092) -0-
$59,122

The statement of financial position net defined benefit liability

account balance as given in part (a) can be proved as follows:
Opening balance + expense – contributions = ending balance

2017: 10,000 cr. + 117,510 cr. – 44,000 dr. = 83,510 cr.

2018: 83,510 cr. + 55,078 cr. – 44,000 dr. = 94,588 cr.
2019: 94,588 cr. + 59,122 cr. – 44,000 dr. = 109,710 cr.

As expected, these also reflect the plan deficiency at each year

end.
PROBLEM 19-4 (CONTINUED)

(c) At January 1, 2017, note that the balance of the net defined benefit
liability on the opening statement of financial position will be equal
to the plan surplus or deficit at that date. The net defined benefit
liability, therefore, was $175,000 - $165,000 = $10,000 cr.

2017
 Defined benefit obligation, 1/1/17 $175,000
Past service cost, 1/1/17 78,000
253,000
Interest cost ($253,000 x 7%) 17,710
Current service cost 35,000
Benefits paid (24,000)
DBO, 12/31/17 $281,710

Plan assets, 1/1/17 $165,000

Actual return on plan assets ($165,000 x 8%) 13,200
Contributions—plan funding 44,000
Benefits paid (24,000)
Plan assets, 12/31/17 $198,200

Plan deficit, Dec. 31/17, and the balance of the

Net Defined Benefit Liability at Dec. 31/17
[see proof in part (d)] $83,510

2018
Defined benefit obligation, 1/1/18 $281,710
Interest cost ($281,710 x 7%) 19,720
Current service cost 47,250
Benefits paid (26,000)
DBO, 12/31/18 $322,680

Plan assets, 1/1/18 $198,200

Actual return on plan assets ($198,200 x 6%) 11,892
Contributions 44,000
Benefits paid (26,000)
Plan assets, 12/31/18 $228,092
PROBLEM 19-4 (CONTINUED)

(c) (continued)

2018 (continued)

Plan deficit, Dec. 31/18, and the balance of the

Net Defined Benefit Liability at Dec. 31/18
[see proof in part (d)] $94,588
 2019
Defined benefit obligation, 1/1/19 $322,680
Interest cost ($322,680 x 7%) 22,588
Current service cost 52,500
Benefits paid (28,000)
DBO, 12/31/19 $369,768

Plan assets, 1/1/19 $228,092

Actual return on plan assets ($228,092 x 7%) 15,966
Contributions 44,000
Benefits paid (28,000)
Plan assets, 12/31/19 $260,058

Plan deficit, Dec. 31/19, and the balance of the Net

Defined Benefit Liability at Dec. 31/19
[see proof in part (d)] $109,710

(d) Pension expense 2017:

Current service cost $ 35,000
Net interest/finance cost:
7% ($253,000 - $165,000) 6,160
Past service cost incurred in year 78,000
$119,160
Remeasurement (gain) loss (OCI) 2017
Asset remeasurement loss (gain):
(7% X $165,000) – (8% X $165,000) $ (1,650)
PROBLEM 19-4 (CONTINUED)

(d) (continued)

Pension expense 2018:

Current service cost $47,250
Net interest/finance cost:
7% X ($281,710 - $198,200) 5,846
$ 53,096
Remeasurement (gain) loss(OCI) 2018
Asset remeasurement loss (gain):
(7% X $198,200) – (6% X $198,200) $ 1,982

Pension expense 2019:

Current service cost $52,500
Net interest/finance cost:
7% X ($322,680 - $228,092) 6,622
$59,122
Remeasurement (gain) loss (OCI) 2019
Asset remeasurement loss (gain):
(7% X $228,092) – (7% X $228,092) -0-

**Note: the remeasurement gains and losses taken to OCI do not

get recycled into net income at a later date.**

The statement of financial position net defined benefit liability

account balance as given in part (c) can be proved as follows:
Opening balance + expense +/– remeasurement loss/gain
– contributions = ending balance

2017: 10,000 cr. + 119,160 cr. – 1,650 dr. – 44,000 dr. = 83,510 cr.
2018: 83,510 cr. + 53,096 cr. + 1,982 cr. – 44,000 dr. = 94,588 cr.
2019: 94,588 cr. + 59,122 cr. +/–0 – 44,000 dr. = 109,710 cr.

As expected, these also reflect the plan deficiency at each year

end.
PROBLEM 19-4 (CONTINUED)

(e) In part (b) under ASPE, all of the changes in the DBO and plan
assets get reported in net income, while under IFRS, the changes
in the DBO and plan assets get split between the expense
recognized in net income and the remeasurements recognized in
OCI. Under IFRS, the remeasurements that are items likely to
change (reverse) in the future are recognized in OCI, and not
subsequently recycled to net income. ASPE does not recognize
OCI in its financial statements, but does require disclosures of
remeasurements similar to IFRS, although what is included in
“remeasurements and other items” under ASPE differs from what is
reported in OCI under the IFRS standard.

One difference is the treatment of past service costs. Under both

GAAPs, past service cost is included in pension expense in the
year of the plan amendment and is reported in net income.
However, ASPE requires past service costs to be included in
“remeasurements and other items” that are separately disclosed
because such costs are not replicable (recurring each period).
IFRS also reports past service costs in the expense because it is
not a remeasurement that is likely to reverse in the future. That is,
separate disclosure treatment under ASPE and OCI treatment
under IFRS are required for different reasons.

The measure of expense over the three-year period, when changes

to OCI are included, will total to the same amount. However, on an
annual basis, net income will be more variable under ASPE. In
addition, under ASPE the entity has an accounting policy choice of
whether to use a funding valuation of the DBO or the accounting
basis DBO. The funding basis measure of expense is often lower.
PROBLEM 19-4 (CONTINUED)

(e) (continued)

Which method results in a better measure of expense over the

three-year period? Because both methods have the same effect on
comprehensive income and on the balance sheet liability, it is
difficult to give an opinion on which measure of expense is better.
To the extent that the expense number is taken into account in
determining net income and earnings per share, the IFRS
approach may be considered better because items that may
change significantly in future periods are eliminated from the EPS
measure. However, because analysts have full information of the
various components under both approaches, they are able to
determine the components that are recurring in nature.

(f) As indicated in part (e), all of the changes in the DBO and plan
assets under ASPE get reported in net income, while under IFRS,
the changes in the DBO and plan assets get split between the
expense recognized in net income and the remeasurements
recognized in OCI. However, the IFRS net income amount plus the
OCI-reported amount add up to the same amount as is included in
expense in ASPE’s net income. As a result, the net defined benefit
liability/asset reported on the statement of financial position and the
plan surplus or deficit are exactly the same. Therefore, the
measure is the same.
 PROBLEM 19-6

(a) Defined benefit obligation, Jan. 1, 2017 $1,430,000

Add interest (8% X $1,430,000)   
114,400
Add current service cost    213,200
Less benefit payments        0
DBO, calculated, December 31, 2017 1,757,600
Liability loss (diff. of calculated vs. actual) 67,600
Actuarial valuation of DBO, Dec. 31, 2017 $1,825,200

Plan assets, Jan. 1, 2017

$1,040,000
Actual return, 2017
80,600
Contributions: $213,200 + $106,600 319,800
Deduct payments to retirees ( 0 )
Plan assets, Dec. 31, 2017 $1,440,400

Plan deficit, December 31, 2017 $ 384,800

(a) Pension expense for 2017:

Current service cost $213,200
Net interest/finance cost:
8% X ($1,430,000 - $1,040,000) 31,200
Asset remeasurement loss:
(8% X $1,040,000) - $80,600 2,600
Liability loss (see part (a) above) 67,600
$314,600

(c) (1) Journal Entries—2017: ASPE

Pension Expense............................................... 314,600

Net Defined Benefit Liability/Asset............. 314,600

Net Defined Benefit Liability/Asset..................... 319,800

Cash ($213,200 + $106,600)..................... 319,800
PROBLEM 19-6 (CONTINUED)

(b) (continued)

(2) If Brawn Corp. applied IFRS, the journal entries would be:

Pension Expense ($213,200 + $31,200)............ 244,400

Net Defined Benefit Liability/Asset............. 244,400

Remeasurement Loss (OCI)

($2,600 + $67,600)....................................... 70,200
Net Defined Benefit Liability/Asset............. 70,200

Net Defined Benefit Liability/Asset..................... 319,800

Cash ($213,200 + $106,600)..................... 319,800

Under IFRS, the asset remeasurement loss is recognized in OCI

as is the liability loss, assumed to have been due to an actuarial
revaluation of the defined benefit obligation. (This loss is not
recycled back through net income.) The pension expense
recognized would be comprised only of the current service cost
and the net interest/finance cost.

(d) Net defined benefit liability, Jan. 1/17

$1,430,000 - $1,040,000 $390,000 Cr.
Pension expense entry, 2017 314,600 Cr.
Contributions entry, 2017 319,800 Dr.
Net defined benefit liability, Dec. 31/17 $384,800 Cr.

The plan deficit is also a credit balance of $384,800. These two

numbers are identical because the inputs to their calculation are
identical. Every item that affects the DBO and the plan assets is
picked up in either the entry to recognize the expense or the entry to
recognize the contributions to the plan. Because all the inputs are the
same, their balances are identical.
PROBLEM 19-6 (CONTINUED)

(e) The liability loss that relates to the disposal of the business segment is
most likely a plan settlement with employees of that segment. It would
be reported in the Discontinued Operations section of the income
statement along with other gains/losses on the disposal of the
segment and any part of the pension expense that relates to the
running of the discontinued operation in 2017. These are reported on
a net-of-tax basis. Under ASPE, the cost of the plan settlement would
be considered a remeasurement, requiring separate disclosure either
on the income statement or in the notes to the financial statements.

If Brawn Corp. applied IFRS instead of ASPE, and the liability loss
related to a plan settlement with employees, the $67,600 loss would
be an income statement item instead of an item of OCI. In this case,
the loss would be reported the same way as under ASPE.