FA Module 14 Pension funded status practice exam questions
(The attached PDF file has better formatting.)
A firm reporting under IFRS has a defined benefit pension plan, with a discount rate of 6%. For 20XX:
● current service cost 49
● past service cost 54
● actuarial gain (or loss) 25
● benefit obligations at beginning of year 3,024
● benefits paid 149
● fair value of plan assets at beginning of year 2,517
● actual return on plan assets 141
● employer contributions 82
Question 14.2: Fair value of plan assets
What is the fair value of the plan assets at the end of the year?
Answer 14.2: 2,517 + 141 + 82 – 149 = 2,591
(The fair value of the plan assets at the end of the year = the fair value of the plan assets at the beginning of the year + the actual return on plan assets + employer contribution – the benefits paid.)
Question 14.3: Remeasurement gain or loss
What is the remeasurement gain or loss?
Answer 14.3: 25 + (141 – 6% × 2,517) = 14.98
(remeasurement gain or loss = actuarial gain or loss + actual return on plan assets – expected return on plan assets)
Question 14.4: Total service cost
What is the total service cost?
Answer 14.4: 49 + 54 = 103
(total service cost = current service cost + past service cost)
Question 14.5: Interest cost on the benefit obligation
What is the interest cost on the benefit obligation?
Answer 14.5: 3,024 × 6% = 181.44
(interest cost on the benefit obligation = discount rate × benefit obligation at the beginning of the year)
Question 14.6: Benefit obligation
What is the benefit obligation at the end of the year?
Answer 14.6: 3,024 + 181.44 – 149 – 25 + 103 = 3,134.44
(benefit obligation at the end of the year = benefit obligation at the beginning of the year + interest cost on the benefit obligation – benefits paid – actuarial gain or loss + total service cost)
Question 14.7: Net interest expense
What is the net interest expense (net interest income)?
Answer 14.7: 6% × (3,024 – 2,517) = 30.42
(net interest expense = discount rate × (benefit obligation at the beginning of the year – fair value of plan assets at the beginning of the year)
Question 14.8: Periodic pension cost
What is the periodic pension cost?
Answer 14.8: 103 + 30.42 – 14.98 = 118.44
(periodic pension cost = total service cost + net interest expense – remeasurement gain or loss)
Question 14.9: Funded status at the beginning of the year
What is the funded status at the beginning of the year?
Answer 14.9: 2,517 – 3,024 = (507)
(funded status = fair value of plan assets – benefit obligation)
Question 14.10: Funded status at the end of the year
What is the funded status at the end of the year?
Answer 14.10: 2,591 – 3,134.44 = (543.44)
(funded status = fair value of plan assets – benefit obligation)
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