Carla Vista Corporation Limited (BCL) began operations in 1996 and in 2006 adopt
ID: 2575850 • Letter: C
Question
Carla Vista Corporation Limited (BCL) began operations in 1996 and in 2006 adopted a defined benefit pension plan for its employees. By January 1, 2017, the accrued benefit obligation was $487,220.
On January 2, 2017, for the first time, BCL agreed to a new union contract that granted retroactive benefits for services that its unionized employees had provided in years before the pension plan came into effect. The actuary informed BCL’s chief accountant that, using its normal discount rate of 5%, benefits relating to these past services would cost the company $229,600.
On January 1, 2017, the fair value of the pension plan assets was $301,350. In recent years, the actual return earned on these assets was highly variable, and in 2017, due to a downturn in the market, the actual return reported for the year was a loss of $9,370. The workforce is made up of a relatively young group of employees, so payments to those who had retired came to only $50,500 during the year, with these payments being made close to year end. The actuary reported that the current service cost for BCL’s employees for 2017 was $113,500. It is the company’s policy, on advice from the actuary, to contribute amounts to the pension plan equal to each year’s current service cost as well as 25% of any past service costs granted in the current year or in any of the preceding three years. The funding payment was made just before BCL’s fiscal year end of December 31, 2017.
At the end of 2017, the actuary revised some key estimates, resulting in an actuarial loss of $14,540 related to the defined benefit obligation
a)Calculate the pension expense that should be reported for BCL’s year ended December 31, 2017, assuming the company reports under IFRS.
b)Calculate the pension expense that should be reported for BCL’s year ended December 31, 2017, assuming the company reports under ASPE.
c)Reconcile the difference in pension expense reported in net income between IFRS and ASPE.
a)Calculate the pension expense that should be reported for BCL’s year ended December 31, 2017, assuming the company reports under IFRS.
b)Calculate the pension expense that should be reported for BCL’s year ended December 31, 2017, assuming the company reports under ASPE.
c)Reconcile the difference in pension expense reported in net income between IFRS and ASPE.
Explanation / Answer
BCL A) IFRS International Financial Reporting Standards Pension expense reported in financial statements for the year ended December 31, 2017 Accrued benefit obligation Jan1, 2017 487220 Past services (using normal discount rate of 5.00% 229600 Total 716820 Fair value of pension assets at 1 Jan 2017 301350 Loss 2017 9370 Net value of pension assets 291980 Paymens to pensioners 50500 Balance 241480 Actuarial loss 14540 Balance 226940 Company's contribution to pension plan: Current year's service cost 113500 25% of Past service cost: Past service costs granted in the current year 57400 Contribution 170900 B) ASPE Accounting Standards for Private Enterprises Company's contribution to pension plan: Current year's service cost 113500 Contribution 113500 C) Recociliation Conribution under IFRS 170900 Conribution under ASPE 113500 Difference 57400 The difference arises due to past service costs not being included in the company's contribution under ASPE