Company C employs several employees. They have set up a new defined benefit plan

Question

Company C employs several employees. They have set up a new defined benefit plan with no retroactive benefits or costs incurred. Both the discount rate and expected rate of return are 10%. The service costs are as follows:

$700,000 for 2010,

$720,000 for 2011, and

$750,000 for 2012.

The company has decided to adopt a policy to fund the pension at an amount $5,000 more than the pension expense. The company expects to make retirement payments of $20,000 beginning in 2012.

B. Prepare the beginning balance of plan assets for 2010, 2011, and 2012.

Explanation / Answer

In this question IAS 19 will be followed. for calculating the opening balance of plan assets for 2010 ,2011 & 2012 , since the discounting rate and expected rate of return i.e. 10% is same, and the company expects to make retirement payments in beginging of 2012 $20000, the Company will Invest Rs. $25000 in plan Assets(since the company invest more than by $5000 the pension expense) the retirement payments in begining of Year 2010. on 2011 the return will be added @ 10% as well as Present Value will also discounted @10%, Hence no effect on Investment, again in 2011 same process will be followed.

Therefore, the Opening balance of plan assets for 2010,2011 & 2012 will be $25000

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