You are the auditor of Pharoah Inc., 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. You have received the following information from the fund trustee for the year ended December 31, 2020:

Discount rate		5%
Rate of compensation increase		3%

Defined Benefit Obligation
Defined benefit obligation at January 1, 2020		$ 10,767,860
Current service cost		436,600
Interest cost		538,393
Benefits paid		735,711
Actuarial loss, end of period		583,090

Plan Assets
Fair value of plan assets at January 1, 2020		9,706,940
Actual return on plan assets, net of expenses		1,097,760
Employer contributions		524,242
Employee contributions		85,879
Benefits paid		735,711

Other relevant information:

1.		The net defined benefit liability on January 1, 2020, is $ 1,060,920.
2.		Employee contributions to the plan are withheld as payroll deductions, and are remitted to the pension trustee along with the employer contributions.

1. Prepare a pension work sheet for the company. Assume IFRS is followed

2. Prepare the employers journal entries to reflect the accounting for the pension plan for the year ended December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020

	(To record pension expense.)
December 31, 2020

	(To record contributions to the pension fund.)

3. Prepare a schedule reconciling the plans surplus or deficit with the pension amounts reported on the December 31, 2020 SFP.

Pharoah Inc. Pension Reconciliation Schedule2020

		$

$

4. Assume that interest rates are falling, and that the rate of compensation increase is expected to fall as well. What effect is this likely to have on the surplus or deficit of the plan?

Effect of interest rate falling

Effect of rate of compensation