Accounting for defined benefit superannuation plans
Some years ago, Wattle Ltd established a defined benefit superannuation plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Wattle Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time. The following actuarial report has been received for the defined benefit plan:
| 2016 | |
| $ | |
| Present value of the defined benefit obligation 1 Jan. | 20000000 |
| Past service cost | 2000000 |
| Net interest | ? |
| Current service cost | 800000 |
| Benefits paid | 2100000 |
| Actuarial loss on DBO | 100000 |
| Present value of the defined benefit obligation 31 Dec. | 23000000 |
| Fair value of plan assets at 1 Jan. | 19000000 |
| Return on plan assets | ? |
| Contributions paid to the fund during the year | 1000000 |
| Benefits paid by the fund during the year | 2100000 |
| Fair value of plan assets at 30 June 2016 | 20130000 |
Additional information
- All contributions received by the funds were paid by Wattle Ltd. Employees make no contributions.
- The interest rate used to measure the present value of the defined benefit obligation was 10% at 31 December 2015 and 31 December 2016.
- The asset ceiling was nil at 31 December 2015 and 31 December 2016.
Required:
- Determine the surplus or deficit of Wattle Ltd’s defined benefit plan at 31 December 2016.
- Determine the net defined benefit asset or liability that should be recognised by Wattle Ltd at 31 December 2016.
- Calculate the net interest and the return on plan assets for the year ended 31 December 2016.
- Present a reconciliation of the opening balance to the closing balance of the net defined benefit liability (asset), showing separate reconciliations for plan assets and the present value of the defined benefit obligation.
- Prepare a summary journal entry to account for the defined benefit superannuation plan in the books of Wattle Ltd for the year ended 31 December 2016.
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