Cases
Practical case
Quermont SA (fictitious entity) funds a defined benefit pension plan through a separate fund. At 31 December 20X6, you prepare the cost of the year and the closing net liability from the actuary report and the fund manager statement.
Your assignment
Compute the opening net liability; determine the service cost of the year from the attributed benefit; compute the interest on the obligation, the interest income on the assets and the net interest; reconcile the obligation and the assets from opening to closing to obtain, as balancing items, the actuarial loss and the return on the assets excluding interest; determine the cost in profit or loss, the net remeasurement in other comprehensive income and the closing net liability; record the four entries, present the effect on the financial statements, explain the presentation and conclude. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
5 documents: open each one to read it.
Document 1Memo
Quermont SA (fictitious entity) closes its accounts on 31 December; its functional currency is the euro. Case conventions (pedagogical assumptions): amounts in EUR; linear attribution of the benefit; the benefits paid by the fund and the employer contribution arise on 31 December, so that the net interest of the year is computed at the start-of-year rate on the opening net liability; no plan change in 20X6; the tax effect is ignored.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Opening obligation | €5,000,000.00 | |
| Closing obligation reported | €5,298,908.97 | |
| Projected benefit | €9,000,000.00 | |
| Share attributed to the year | 4% | |
| Discounting years | 12 years | |
| Start-of-year discount rate | 6% | |
| Benefits paid by the fund | €310,000.00 | |
| Opening fair value of the assets | €4,200,000.00 | |
| Closing fair value of the assets | €4,611,500.00 | |
| Actual return on the assets | €301,500.00 | |
| Employer contribution | €420,000.00 | |
| Training invoice | €8,200.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Company profile and case conventions
Actuary report at 31 December 20X6
Fund manager statement
Management note: discount rate
Staff training invoice
20 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
How is the net liability of the plan defined, and how is the cost of the year split between profit or loss and other comprehensive income?
Task 2Calculation
Compute the benefit attributed to the year.
Part 1 · Calculation
Compute the benefit attributed to the year.
Task 3Calculation
Compute the service cost of the year.
Part 1 · Calculation
Compute the service cost of the year.
Task 4Calculation
Compute the opening net liability.
Part 1 · Calculation
Compute the opening net liability.
Task 5Calculation
Compute the interest on the opening obligation.
Part 1 · Calculation
Compute the interest on the opening obligation.
Task 6Calculation
Compute the interest income on the plan assets.
Part 1 · Calculation
Compute the interest income on the plan assets.
Task 7Calculation
Compute the net interest of the year.
Part 1 · Calculation
Compute the net interest of the year.
Task 8Calculation
Reconcile the obligation and determine the actuarial loss as a balancing item.
Part 1 · Calculation
Reconcile the obligation and determine the actuarial loss as a balancing item.
Result: Actuarial loss (5,298,908.97 − 5,168,908.97)
Task 9Calculation
Compute the return on the assets excluding interest from the actual return.
Part 1 · Calculation
Compute the return on the assets excluding interest from the actual return.
Task 10Calculation
Reconcile the assets and determine, as a balancing item, the gain excluding interest.
Part 1 · Calculation
Reconcile the assets and determine, as a balancing item, the gain excluding interest.
Result: Gain excluding interest (4,611,500 − 4,562,000)
Task 11Calculation
Compute the cost of the year in profit or loss.
Part 1 · Calculation
Compute the cost of the year in profit or loss.
Task 12Calculation
Compute the net remeasurement in other comprehensive income.
Part 1 · Calculation
Compute the net remeasurement in other comprehensive income.
Task 13Calculation
Compute the closing net liability.
Part 1 · Calculation
Compute the closing net liability.
Task 14Journal entries
Record the service cost.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 15Journal entries
Record the net interest.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 16Journal entries
Record the net remeasurement in other comprehensive income.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 17Journal entries
Record the employer contribution to the fund.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 18Effects on the financial statements
What is the effect of the four entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 19Analysis
Why do remeasurements go to other comprehensive income and why are they never reclassified to profit or loss?
Task 20Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 22).
Document this file
These working papers use the data and results of this case.
Normative references