On January 1, 2020, Company A agrees to pay a lump sum pension to the employees equal to 5% of their final salary times the number of years worked after January 1, 2020. It is estimated that the salary of a certain employee for 2029, the last year with the entity, will be P1,500,000. The appropriate interest rate is 12%.

Compute for the ff:

1)Current service cost in 2020, 2021, 2022, 2023 and 2024

2)Interest expense in 2020, 2021, 2022, 2023 and 2024

3)PBO, Jan. 1, 2020, Dec. 31,2020, Dec. 31,2021, Dec. 31,2022, Dec. 31,2023 and Dec. 31,2024

PROBLEM II

Company A has established a defined benefit plan for the employee. Annual payments under the plan are equal to highest lifetime salary multiplied by 2% multiplied by the number of years with the entity. On December 31, 2020, an employee had worked with the entity for 15 years. The current annual salary of the employee is P600,000.

The employee is expected to retire in 10 years and the increase in salary is expected to be 4% per year. The discount rate is 10%. The employee is expected to live 8 years after retirement and shall receive the first annual pension payment one year after retirement.

Compute for the ff:

1)Current service cost in 2021, 2022, 2023 and 2024

2)Interest expense in 2021, 2022, 2023 and 2024

3)PBO, Dec. 31,2021, Dec. 31,2022, Dec. 31,2023 and Dec. 31,2024

PROBLEM III

A director of Company A shall receive a retirement benefit of 20% of final salary per annum for a contractual period of 3 years.

The anticipated salary is P1,000,000 for 2020, P1,200,000 for 2021 and P1,500,000 for 2022.

The discount rate is 10%.

Compute for the ff:

1)Current service cost in 2020, 2021, and 2022

2)Interest expense in 2020, 2021, and 2022

3)PBO, Dec. 31,2020, Dec. 31,2021, and Dec. 31,2022

PROBLEM IV

Company A has established a defined benefit plan indicating a plan formula for annual benefit equal to 2% multiplied by the number of years in service multiplied by the final year's salary. The annual benefit is payable at the end of each year.

An employee was hired by the entity on January 1,2000 and expected to retire on December 31, 2044. The employee's retirement is expected to span 21 years.

The employee's final salary at retirement is expected to be P800,000 and the appropriate discount rate is 8%.

On January 1, 2020, the plan formula was amended by increasing the percentage from 2% to 3%. The amendment was made retroactive to consider past service years.

Compute for the ff:

1)PBO, Jan 1, 2020 (before amendment), Jan 1, 2020 (after amendment), Dec. 31,2020, Dec. 31, 2021 and Dec. 31 2022

2)Past service cost, 2020, 2021 and 2022

3)Current service cost, 2020, 2021 and 2022

4)Interest expense, 2020, 2021 and 2022