Financial Reporting

You are the auditor of Company A the Canadian subsidiary of a public multinational engineering company that offers a defined benefit pension plan to its eligible employees. Employees are permitted to join the plan after two years of employment, and benefits vest immediately. The company follows IFRS. You have received the following information from the fund trustee for the year ended December 31, 2020:

Questions:

(a) Using the above information prepare a pension work sheet for the year. Calculated amounts and decisions should be supported. Note and justify any assumptions.

(b) Prepare the journal entries to reflect the accounting for the company's pension plan for the year ending December 31, 2020. Show any calculations.

(c) Assume that interest rates are falling and that the rate of salary increase is also falling. Explain the impact on the surplus/deficit of the plan. Explain how this would this be accounted for in the year that these changes in assumptions are made?

(d) What is the economic cost of the plan for the current year? Reconcile this to the journal entries above.

(e) What is the entry for deferred tax for the current year with respect to pensions assuming a tax rate of 40% for all years?

Discount rate Rate of salary increase Defined benefit obligation at January 1, 2020 Current service cost Benefits paid (paid mid year) Actuarial loss on DBO, end of period Fair value of plan assets at January 1, 2020 Actual return on plan assets Employer contributions (paid mid year) 5% 3.5% $11,375,000 425,000 756,250 631,250 9,062,500 1,125,000 493,750