[TFA] Postemployment Benefits

Question 1

Which statement characterizes defined contribution plan?

a. Defined contribution plans are more complex than defined benefit plans.
b. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.

Answer 1

Answer: b. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution.

Question 2

Which is not a characteristic of defined contribution plan?

a. The employer contribution each period is based on a formula.
b. The benefits to be received are usually determined by an employee’s highest salary.
c. The accounting for a defined contribution plan is straightforward and uncomplicated.
d. The benefit of gain or the risk of loss from the assets contributed to the plan is borne by the employee.

Answer 2

Answer: b. The benefits to be received are usually determined by an employee’s highest salary.

Question 3

A formula in a defined contribution plan:

a. Defines the benefits that the employee will receive at the time of retirement.
b. Ensures that the defined benefit cost and funding are the same.
c. Requires an employer to contribute a certain sum each period based on the formula.
d. Ensures that enough fund would be available.

Answer 3

Answer: c. Requires an employer to contribute a certain sum each period based on the formula.

Question 4

Which statement is true concerning the recognition and measurement of a defined contribution plan?

a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued liability.
c. Any excess contribution shall be recognized as a prepaid expense but only to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
d. All of these statements are true about a defined contribution plan.

Answer 4

Answer: d. All of these statements are true about a defined contribution plan.

Question 5

Which statement characterizes a defined benefit plan?

a. Defined benefit plans are comparatively simple.
b. Retirement benefits are based on the plan’s benefit formula.
c. Retirement benefits depend on how well pension fund assets have been managed.
d. The investment risk is borne by the employee.

Answer 5

Answer: b. Retirement benefits are based on the plan’s benefit formula.

Question 6

Which statement is incorrect concerning the recognition and measurement of a defined benefit plan?

a. Actuarial assumptions are required to measure the obligation and expense and there is a possibility of actuarial gains and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution due for the period.

Answer 6

Answer: c. The defined benefit plan must be fully funded.

Question 7

In a defined benefit plan, the process of funding refers to:

a. Determining the defined benefit obligation.
b. Determining the accumulated benefit obligation.
c. Making the periodic contributions to a funding agency to ensure that funds are available to meet claims.
d. Determining the amount reported for pension expense.

Answer 7

Answer: c. Making the periodic contributions to a funding agency to ensure that funds are available to meet claims.

Question 8

In accounting for a defined benefit plan:

a. An appropriate funding must be established to ensure that enough fund would be available at retirement.
b. The employer responsibility is simply to make a contribution each year.
c. The expense recognized each period is equal to the cash contribution to the plan.
d. The liability is determined based upon variables that reflect current salary levels.

Answer 8

Answer: a. An appropriate funding must be established to ensure that enough fund would be available at retirement.

Question 9

The formula in a defined benefit plan:

a. Requires that the benefit of gain or the risk of loss from the assets contributed to the plan should be borne by the employee.
b. Defines the benefits that the employee will receive at the time of retirement.
c. Requires that the defined benefit cost and funding must be the same.
d. Defines the contribution to be made by the employer, and no promise is made concerning the ultimate benefits to be paid out to the employees.

Answer 9

Answer: b. Defines the benefits that the employee will receive at the time of retirement.

Question 10

In rare circumstances, when a retirement benefit plan has attributes of both defined contribution and defined benefit plan, the plan is deemed:

a. Defined benefit plan
b. Defined contribution plan
c. Neither defined benefit nor defined contribution plan
d. Both defined benefit and defined contribution plan

Answer 10

Answer: a. Defined benefit plan.

Question 11

The defined benefit cost includes all, except:

a. Service cost
b. Net interest
c. Remeasurements
d. Contribution to the plan

Answer 11

Answer: d. Contribution to the plan.

Question 12

The service cost comprises all, except:

a. Current service cost
b. Past service cost
c. Gain or loss on plan settlement
d. Net interest

Answer 12

Answer: d. Net interest.

Question 13

Which of the following components of defined benefit cost shall be recognized through other comprehensive income?
a. Current service cost
b. Past service cost
c. Net interest
d. Remeasurements

Answer 13

Answer: d. Remeasurements.

Question 14

Remeasurements of defined benefit plan include:

a. The difference between actual return and interest income on plan assets.
b. Actuarial gain or loss on projected benefit obligation.
c. Change in the effect of asset ceiling minus interest expense on the beginning effect of asset ceiling.
d. All of these are included in remeasurements of defined benefit plan.

Answer 14

Answer: d. All of these are included in remeasurements of defined benefit plan.

Question 15

When an entity amends a pension plan, past service cost should be:

a. Treated as a prior period adjustment.
b. Amortized over the remaining service period.
c. Recorded in other comprehensive income.
d. Reported as an expense in the period the plan is amended.

Answer 15

Answer: d. Reported as an expense in the period the plan is amended.

Question 16

What is net interest in relation to a defined benefit cost?

a. Interest expense on projected benefit obligation
b. Interest income on the fair value of plan assets
c. The difference between interest expense on projected benefit obligation, interest expense on effect of asset ceiling, and interest income on plan assets
d. Interest expense on benefit obligation less tax

Answer 16

Answer: c. The difference between interest expense on projected benefit obligation, interest expense on effect of asset ceiling, and interest income on plan assets.

Question 17

Which of the following should be included in plan assets?

a. Assets held by a long-term employee benefit fund
b. Qualifying insurance policy
c. Both assets held by a long-term employee benefit fund and qualifying insurance policy
d. Neither assets held by a long-term employee benefit fund nor qualifying insurance policy

Answer 17

Answer: b. Qualifying insurance policy.

Question 18

The return on plan assets:

a. Is equal to the fair value of the plan assets
b. Includes interest, dividends, and change in the fair value of the plan assets during the year
c. Is equal to the discount rate times fair value of assets
d. Is equal to expected rate of return times the fair value of plan assets at the beginning of the period

Answer 18

Answer: b. Includes interest, dividends, and change in the fair value of the plan assets during the year.

Question 19

Plan assets must satisfy all conditions, except:

a. The assets are held by an entity, the fund itself, that is legally separate from the reporting entity.
b. The assets are available to pay only employee benefits.
c. The assets are not available to the creditors.
d. The assets can be returned to the entity even if the assets are insufficient to meet benefit obligations.

Answer 19

Answer: d. The assets can be returned to the entity even if the assets are insufficient to meet benefit obligations.

Question 20

It is an insurance policy issued by an insurer that is not a related party of the reporting entity and the proceeds of the policy can be used only to pay employee benefits:

a. Qualifying insurance policy
b. Aggregate policy
c. Annuity
d. Unconditional insurance policy

Answer 20

Answer: a. Qualifying insurance policy.

Question 21

A pension liability is reported when:

a. The projected benefit obligation exceeds the fair value of plan assets.
b. The accumulated benefit obligation is less than the fair value of plan assets.
c. The pension expense is greater than funding.
d. Other comprehensive income exceeds fair value.

Answer 21

Answer: a. The projected benefit obligation exceeds the fair value of plan assets.

Question 22

A pension asset is reported when:

a. The accumulated benefit obligation exceeds the fair value of plan assets.
b. The accumulated benefit obligation exceeds the fair value of plan assets but a past service cost exists.
c. Plan assets at fair value exceed the accumulated benefit obligation.
d. Plan assets at fair value exceed the projected benefit obligation.

Answer 22

Answer: d. Plan assets at fair value exceed the projected benefit obligation.

Question 23

Which measure requires the use of future salaries in the computation of benefit obligation?

a. Vested benefit obligation
b. Accumulated benefit obligation
c. Projected benefit obligation
d. Current benefit obligation

Answer 23

Answer: c. Projected benefit obligation.

Question 24

What is the discount rate for pension plans?

a. The market yield at the end of the reporting period for high-quality corporate bonds
b. The expected rate of return on plan assets
c. The weighted average interest rate
d. The bank prime interest rate

Answer 24

Answer: a. The market yield at the end of the reporting period for high-quality corporate bonds.

Question 25

The interest on the projected benefit obligation:

a. Reflects the incremental borrowing rate
b. Reflects the rate at which retirement benefits could be effectively settled
c. Is the same as the actual return on plan assets
d. May be stated implicitly

Answer 25

Answer: b. Reflects the rate at which retirement benefits could be effectively settled.

Question 26

Interest cost in the pension cost represents

a. Shortage between the expected and actual return.
b. Change in the nature of benefits.
c. Increase in the PBO due to passage of time.
d. Increase the FVPA due to the passage of time.

Answer 26

Answer: c. Increase in the PBO due to passage of time.

Question 27

Vested benefits

a. Usually require a certain minimum number of years of service.
b. Are those that the employee is entitled to receive even if fired.
c. Are not contingent upon additional service.
d. Are defined by all of these.

Answer 27

Answer: d. Are defined by all of these.

Question 28

What is the relationship between the amount funded and the amount reported for defined benefit cost?

a. Defined benefit cost must equal the amount funded.
b. Defined benefit cost is less than the amount funded.
c. Defined benefit cost is more than the amount funded.
d. Defined benefit cost may be more than, equal to, or less than the amount funded.

Answer 28

Answer: d. Defined benefit cost may be more than, equal to, or less than the amount funded.

Question 29

The projected benefit obligation

a. Is required for reporting the current service cost.
b. Requires pension expense based on existing salary.
c. Requires the longest possible period for funding to maximize the tax deduction.
d. Is not sanctioned under IFRS.

Answer 29

Answer: a. Is required for reporting the current service cost.

Question 30

In computing the current service cost

a. The accumulated benefit obligation provides a more realistic measure of the pension obligation.
b. An entity should employ an actuarial funding method
c. The projected benefit obligation using future compensation provides a realistic measure of pension obligation.
d. The estimated return on plan assets should be recognized.

Answer 30

c. The projected benefit obligation using future compensation provides a realistic measure of pension obligation.

Question 31

The present value of pension benefits accrued to date
using assumptions as to future compensation level is

a. Unfunded benefit obligation
b. Projected benefit obligation
c. Actual return on plan assets
d. Accumulated benefit obligation

Answer 31

b. Projected benefit obligation

Question 32

The vested benefits in a pension plan represent

a. Benefits to be paid to the retired employee.
b. Benefits accumulated in the hands of trustee.
c. Benefits to be paid to the retired employee.
d. Benefits that are not contingent on the employee’s
continuing in the service of the employer.

Answer 32

d. Benefits that are not contingent on the employee’s
continuing in the service of the employer.

Question 33

In the calculation of pension expense under a defined
benefit plan, which component will not be included?

a. Past serving cost
b. Interest cost on the projected benefit obligation
c. Actual return on plan assets
d. Gain or loss on plan settlement

Answer 33

c. Actual return on plan assets

Question 34

When may the entity net assets and liabilities of the various retirement plans?

a. When cash inflows and outflows are similar in pattern
b. When the assets and liabilities are both financial.
c. Assets and liabilities may always be netted.
d. Assets and liabilties may be netted when there is a legally enforceable right to use the assets of one plan
to settle the obligations of another plan.

Answer 34

d. Assets and liabilties may be netted when there is a legally enforceable right to use the assets of one plan
to settle the obligations of another plan.

Question 35

Retirement benefit plan investments shall be carried at

a. Fair value
b. Historical cost
c. Amortized cost
d. Value in use

Answer 35

a. Fair value

Question 36

Short-term employee benefits include all, except:

a. Wages, salaries, and social security contributions
b. Short-term compensated absences
c. Profit-sharing bonus payable in more than twelve months after the end of the reporting period
d. Nonmonetary benefits such as housing and car

Answer 36

ANSWER: c. Profit-sharing bonus payable in more than twelve months after the end of the reporting period

Question 37

Short-term benefits are described by all, except:

a. No actuarial assumptions are required
b. There is no possibility of any actuarial gain or loss
c. Short-term employee benefits by definition are payable no later than twelve months after year-end
d. Short-term employee benefit obligations are discounted

Answer 37

ANSWER: d. Short-term employee benefit obligations are discounted

Question 38

These are compensated or paid absences that are carried forward and can be used in future periods, and the employees are entitled to a cash payment for unused entitlement on leaving the entity.

a. Accumulating and vesting
b. Accumulating and nonvesting
c. Nonaccumulating and vesting
d. Nonaccumulating and nonvesting

Answer 38

ANSWER: a. Accumulating and vesting

Question 39

Which of the following criteria is not required for the recognition of a liability for compensated absences?

a. The amount of the obligation must be estimable
b. Payment of the obligation must be probable
c. Payment requires the use of current assets
d. The compensation vests with the employee

Answer 39

ANSWER: c. Payment requires the use of current assets

Question 40

These are employee benefits that are payable as a result of an employee’s decision to accept an offer of benefits in exchange for termination of employment.

a. Termination benefits
b. Short-term employee benefits
c. Other long-term employee benefits
d. Post-employment employee benefits

Answer 40

ANSWER: a. Termination benefits

Question 41

Employees are each entitled to 20 days of paid holiday leave per year. Unused holiday leave cannot be carried forward and does not vest. What is the holiday leave?

a. A short-term employee benefit
b. A post-employment benefit
c. Other long-term employee benefit
d. A termination benefit

Answer 41

ANSWER: a. A short-term employee benefit

Question 42

An entity made a public announcement of a commitment to a voluntary redundancy plan. The entity has an obligation to pay employees who choose voluntary redundancy a lump sum equal to twice their gross annual salary. What is the obligation to pay employees who choose voluntary redundancy?

a. A short-term employee benefit
b. A post-employment benefit
c. Other long-term employee benefit
d. A termination benefit

Answer 42

ANSWER: d. A termination benefit

Question 43

A profit-sharing plan requires an entity to pay a specified proportion of the cumulative profit for a five-year period to employees who serve throughout the five-year period. What is the profit-sharing plan?

a. A short-term employee benefit
b. A post-employment benefit
c. Other long-term employee benefit
d. A termination benefit

Answer 43

ANSWER: c. Other long-term employee benefit

Question 44

What are compensated absences?

a. Unpaid time off
b. A form of healthcare
c. Payroll deductions
d. Paid time off

Answer 44

Answer: d. Paid time off

Question 45

A liability for paid absences should

a. Be accrued during the period when the compensated time is expected to be used by employees.
b. Be accrued during the period following vesting.
c. Be accrued during the period when earned.
d. Not be accrued unless a contractual obligation exists.

Answer 45

Answer: a. Be accrued during the period when the compensated time is expected to be used by employees.

Question 47

If the payment of employees’ compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rights that accumulate, the compensation should be

a. Accrued if attributable to services not yet rendered.
b. Accrued if attributable to services already rendered.
c. Accrued if attributable to services whether already rendered or not.
d. Recognized when paid.

Answer 47

Answer: b. Accrued if attributable to services already rendered.

Question 48

When an employer offered termination benefits which provided for immediate lump sum payments and future payments in two years, the expense should include
a. The total of the lump sum and future payments.
b. The total of the lump sum payments and the present value of the future payments.
c. The lump sum payments.
d. The lump sum payments and the present value of the future payments

Answer 48

Answer: d. The lump sum payments and the present value of the future payments.

Question 49

What is the requirement for the accrual of a sick pay?

a. Sick pay benefits can be reliably estimated.
b. Sick pay benefits vest.
c. Sick pay benefits do not vest.
d. Sick pay benefits accumulate.

Answer 49

Answer: b. Sick pay benefits vest.