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Post Employment Benefits - Essay Example

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Summary to essay on topic "Post Employment Benefits"
As the company is in financial trouble and in the process of internal-reorganization, usually in such a situation all the claimants (Creditors, share holders, debenture holders, employees, etc.) give up a part of their claim so that the company is in a better position to function properly and does not come down to a state of liquidation…
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Download file "Post Employment Benefits" to see previous pages... 2. We have been provided with what would be "amortized" this year (2007) towards Unrecognized Prior Service Costs, but we have not been provided with what is the actual amount pending towards UPSC.
3. We have been told that the employer's contribution would be 3% of payroll. But we do not know as to what are the company's expenses on salaries and wages.
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4. We have no information regarding the number of employees involved in the scheme, their retirement dates, etc. All this information can influence the answer.
So, where ever required, we have made suitable assumptions relating the above missing information.
Answer 1:
From the given information, if the company decides to go on with its existing (DBP) post employment benefits plan, from the information available, we can draw up an approximate pension worksheet, as follows:


General Journal Entries

Memo Record

Annual Pension Expense
(Prepaid) / Accrued Cost

Projected Benefit Obligation
Plan Assets
Unrecognized Prior Service Cost

Balance, Dec. 31, 2006

810,000 Cr

Unrecognized Prior Service Cost

Balance, Jan. 1, 2007


(810,000+) Cr
340,000 Dr

Service Cost

88,000 Dr


Interest Cost

81,000 Dr

81,000 Cr

Actual Return

34,000 Cr

34,000 Dr

Amortization of UPSC
21,000 Dr

21,000 Cr


X Cr

X Dr

Journal Entry for 2007

156,000 Dr
X Cr
(156,000 - X) Cr

Balance, Dec. 31, 2007


(374,000 + X) Dr

Note: In the above table,
1. Interest / Discount / Settlement Rate = 10%
2. Opening and closing balance of Unrecognized Prior Service Cost is unknown. (Shown as '')
3. Since the amount contributed by the employer...
They do so by letting the company switch over from its existing 'defined benefits plan' to a 'defined contribution plan' to save costs.
3. The employees give up their claim on every other liability, like whatever is pending towards Unrecognized Prior service costs, what ever would be this years service cost, interest burden on what ever is pending towards 'Projected Benefits Obligation', etc.
5. Employer will contribute 3% of the payroll towards the 'retirement fund' or the 'plan assets' hence forth regardless of whatever has been accumulated in the fund, whether it is sufficient, insufficient or in excess.
6. AND hence forth, since the company moves on with a 'defined contribution plan', employer doesn't have any more liability other than payment of his annual contribution towards the fund and what ever post employment benefits are to be derived would be out of the balance in the 'fund' kept aside for that purpose.
From the given information, if the company decides to go on with its existing (DBP) post employment benefits plan, from the information available, we can draw up an approximate pension worksheet, as follows:
While, if the employer decides to switch over to a 'defined contribution plan' where the employer pays 3% of payroll as his contribution, the agreement being that the employees get to keep what is already in the defined benefit ...Download file "Post Employment Benefits" to see next pagesRead More
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