[THEORY] Defined Benefit Plan Flashcards
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 the funding.
d. Cumulative other comprehensive income exceeds the fair value of plan assets.
ANSWER: a. The projected benefit obligation exceeds the fair value of plan assets.
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 and past service cost.
c. Plan assets at fair value exceed the accumulated benefit obligation.
d. Plan assets at fair value exceed the projected benefit obligation.
ANSWER: c. Plan assets at fair value exceed the accumulated benefit obligation.
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: c. Projected benefit obligation
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: a. The market yield at the end of the reporting period for high-quality corporate bonds
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: b. Reflects the rate at which retirement benefits could be effectively settled
Interest cost included in the net pension cost under a defined benefit plan represents:
a. Shortage between the expected and actual return
b. Change in the nature of benefits
c. Increase in PBO due to the passage of time
d. Increase in FVPA due to the passage of time
ANSWER: c. Increase in PBO due to the passage of time
Vested benefits:
a. Usually require a 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: d. Are defined by all of these
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: d. Defined benefit cost may be more than, equal to, or less than the amount funded
The projected benefit obligation:
a. Is required for reporting the current service cost component of pension expense
b. Requires pension expense based on existing salary
c. Requires the longest possible period for funding
d. Is not sanctioned under IFRS
ANSWER: a. Is required for reporting the current service cost component of pension expense
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 that best reflects the benefits to employees
c. The defined benefit obligation, using future compensation level, provides a realistic measure of pension obligation and expense
d. The actual and estimated return on plan assets should be recognized
ANSWER: c. The defined benefit obligation, using future compensation level, provides a realistic measure of pension obligation and expense
The present value of pension benefits accrued to date using assumptions as to future compensation level is:
a. Accrued pension cost
b. Projected benefit obligation
c. Past service cost
d. Accumulated benefit obligation
ANSWER: b. Projected benefit obligation
The vested benefits in a pension plan represent:
a. Benefits to be paid to the retired employee
b. Benefits accumulated in the hands of the trustee
c. Benefits to be paid to the retired employee in the current year
d. Benefits that are not contingent on the employee’s continuing service with the employer
ANSWER: d. Benefits that are not contingent on the employee’s continuing service with the employer
In the calculation of pension expense under a defined benefit plan, which component will not be included?
a. Actuarial present value of benefits attributed by the pension benefit formula to employee service during the current period
b. Interest cost on the projected benefit obligation
c. Actual return on plan assets
d. Gain or loss on plan settlement
ANSWER: c. Actual return on plan assets
When may the entity net assets and liabilities of the various retirement plans?
a. When the estimated 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 liabilities 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: d. Assets and liabilities may be netted when there is a legally enforceable right to use the assets of one plan to settle the obligations of another plan
Retirement benefit plan investments shall be carried at:
a. Fair value
b. Historical cost
c. Amortized cost
d. Value in use
ANSWER: a. Fair value
