Question: Exercise 10.10 ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS Lily Ltd provides a defi ned benefi t pension plan for its managers. The

Exercise 10.10 ★ ★ ★ ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS Lily Ltd provides a defi ned benefi t pension plan for its managers. The following information is available in relation to the plan. 2016 $ Present value of the defi ned benefi t obligation 31 December 2015 Fair value of plan assets 31 December 2015 Current service cost Contributions paid by Lily Ltd to the plan during the year Benefi ts paid by the plan during the year Present value of the defi ned benefi t obligation 31 December 2016 Fair value of plan assets at 31 December 2016 10 000 000 9 500 000 1 150 000 1 000 000 1 200 000 10 750 000 10 047 500 Additional information

(a) No past service costs were incurred during 2016.

(b) The interest rate used to measure the present value of defi ned benefi ts at 31 December 2015 was 9%.

(c) The interest rate used to measure the present value of defi ned benefi ts at 31 December 2016 was 10%.

(d) There was an actuarial gain pertaining to the present value of the defi ned benefi t obligation as a result of an increase in the interest rate.

(e) The only remeasurement affecting the fair value of plan assets is the return on plan assets.

(f) The asset ceiling was nil at 31 December 2015 and 31 December 2016. (g) All contributions received by the plan were paid by Lily Ltd. Employees make no contributions. Required 1. Determine the surplus or defi cit of Lily Ltd’s defi ned benefi t plan at 31 December 2016. 2. Determine the net defi ned benefi t asset or liability that should be recognised by Lily Ltd at 31 December 2016. 3. Calculate the net interest for 2016. 4. Calculate the actuarial gain or loss for the defi ned benefi t obligation for 2016. 5. Calculate the return on plan assets, excluding any amount recognised in net interest, for 2016. 6. Present a reconciliation of the opening balance to the closing balance of the net defi ned benefi t liability (asset), showing separate reconciliations for plan assets and the present value of the defi ned benefi t obligation. 7. Prepare a summary journal entry to account for the defi ned benefi t pension plan in the books of Lily Ltd for the year ended 31 December 2016.

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