ABC Ltd initiated a one-person pension plan in January 2012 that promises the employee a pension...

ABC Ltd initiated a one-person pension plan in January 2012 that promises the employee a pension on retirement according to the following formula: pension benefit = 2.5% of final salary per year of service after the plan initiation. The employee began employment with ABC Ltd early in 2009 at age 33, and expects to retire at the end of 2035, the year in which he turns 60. His life expectancy at that time is 21 years. Assume that this employee earned an annual salary of $40,000 when he joined ABC Ltd, that his salary was expected to increase at a rate of 4% per year, and that this remains a reasonable assumption to date. MedPlus considers a discount rate of 6% to be appropriate.

Required:

1) What is the employee’s expected final salary?

2) What amount of current service cost should MedPlus recognize in 2017 relative to this plan?

3) What is the amount of the accrued benefit obligation at December 31, 2017?

Expert Solution

1	What is the employee’s expected final salary?
Ans:	The employee expected final salary is 115,334.7

2	What amount of current service cost should MedPlus recognize in 2017 relative to this plan?
Ans:	What amount of current service cost recognize in 2017 relative to this plan should be 1,010.04 as per below table

3	What is the amount of the accrued benefit obligation at December 31, 2017?
Ans:	The amount of the accrued benefit obligation at December 31, 2017 should be 9090.37 as per below tavble






	Year	Amount	Increament	Closing Salary	Benefit Each Month	Dic Rate	Dic Value(a)	Opening Balance	CSC	IC	Closing
1	2009	40000	4%	41,600	2,883.0	4.55	633.71	0	633.71	-	633.71
2	2010	41600	4%	43,264	2,883.0	4.29	671.74	633.71	671.74	38.02	1,343.47
3	2011	43264	4%	44,995	2,883.0	4.05	712.04	1,343.47	712.04	80.61	2,136.12
4	2012	44994.56	4%	46,794	2,883.0	3.82	754.76	2,136.12	754.76	128.17	3,019.05
5	2013	46794.342	4%	48,666	2,883.0	3.60	800.05	3,019.05	800.05	181.14	4,000.24
6	2014	48666.116	4%	50,613	2,883.0	3.40	848.05	4,000.24	848.05	240.01	5,088.30
7	2015	50612.761	4%	52,637	2,883.0	3.21	898.93	5,088.30	898.93	305.30	6,292.53
8	2016	52637.271	4%	54,743	2,883.0	3.03	952.87	6,292.53	952.87	377.55	7,622.95
9	2017	54742.762	4%	56,932	2,883.0	2.85	1,010.04	7,622.95	1,010.04	457.38	9,090.37
10	2018	56932.472	4%	59,210	2,883.0	2.69	1,070.64	9,090.37	1,070.64	545.42	10,706.44
11	2019	59209.771	4%	61,578	2,883.0	2.54	1,134.88	10,706.44	1,134.88	642.39	12,483.70
12	2020	61578.162	4%	64,041	2,883.0	2.40	1,202.98	12,483.70	1,202.98	749.02	14,435.70
13	2021	64041.289	4%	66,603	2,883.0	2.26	1,275.15	14,435.70	1,275.15	866.14	16,577.00
14	2022	66602.94	4%	69,267	2,883.0	2.13	1,351.66	16,577.00	1,351.66	994.62	18,923.28
15	2023	69267.058	4%	72,038	2,883.0	2.01	1,432.76	18,923.28	1,432.76	1,135.40	21,491.44
16	2024	72037.74	4%	74,919	2,883.0	1.90	1,518.73	21,491.44	1,518.73	1,289.49	24,299.65
17	2025	74919.25	4%	77,916	2,883.0	1.79	1,609.85	24,299.65	1,609.85	1,457.98	27,367.49
18	2026	77916.02	4%	81,033	2,883.0	1.69	1,706.44	27,367.49	1,706.44	1,642.05	30,715.98
19	2027	81032.661	4%	84,274	2,883.0	1.59	1,808.83	30,715.98	1,808.83	1,842.96	34,367.77
20	2028	84273.967	4%	87,645	2,883.0	1.50	1,917.36	34,367.77	1,917.36	2,062.07	38,347.19
21	2029	87644.926	4%	91,151	2,883.0	1.42	2,032.40	38,347.19	2,032.40	2,300.83	42,680.43
22	2030	91150.723	4%	94,797	2,883.0	1.34	2,154.35	42,680.43	2,154.35	2,560.83	47,395.60
23	2031	94796.752	4%	98,589	2,883.0	1.26	2,283.61	47,395.60	2,283.61	2,843.74	52,522.94
24	2032	98588.622	4%	1,02,532	2,883.0	1.19	2,420.62	52,522.94	2,420.62	3,151.38	58,094.94
25	2033	102532.17	4%	1,06,633	2,883.0	1.12	2,565.86	58,094.94	2,565.86	3,485.70	64,146.49
26	2034	106633.45	4%	1,10,899	2,883.0	1.06	2,620.91	64,146.49	2,620.91	3,848.79	70,616.19
27	2035	110898.79	4%	1,15,335	2,883.0	1.00	2,883.0	70,616.19	2,883.00	4,236.97	77,736.16

	Post Employment Benifit			77,851.0
	(Last Drawn Salary * No. Of Completed Year of Service * 2.5%)
	Benefit each Month=		Post employment Benefit/No of year of servoce
			=77851/27
			2,883
	Note-
	Best effort have been made to answer the question correctly, in case of any discrepencies kindly comment and i will try to resolve it as soon as possible.
	Please provide positive feedback.

ekkarill92 answered 1 year ago

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