In: Accounting
You are the auditor of Crane Inc., the Canadian subsidiary of a public multinational engineering company that offers a defined benefit pension plan to its eligible employees. Employees are permitted to join the plan after two years of employment, and benefits vest immediately. You have received the following information from the fund trustee for the year ended December 31, 2020:
Discount rate | 5% | ||
Rate of compensation increase | 4% |
Defined Benefit Obligation | |||
Defined benefit obligation at January 1, 2020 | $11,263,680 | ||
Current service cost | 409,380 | ||
Interest cost | 563,184 | ||
Benefits paid | 749,461 | ||
Actuarial loss, end of period | 572,990 |
Plan Assets | |||
Fair value of plan assets at January 1, 2020 | 9,160,080 | ||
Actual return on plan assets, net of expenses | 1,074,040 | ||
Employer contributions | 501,975 | ||
Employee contributions | 79,172 | ||
Benefits paid | 749,461 |
Other relevant information:
1. | The net defined benefit liability on January 1, 2020, is $2,103,600. | ||
2. | Employee contributions to the plan are withheld as payroll deductions, and are remitted to the pension trustee along with the employer contributions. |
Prepare a pension work sheet for the company. Assume IFRS is followed.
Prepare the employer’s journal entries to reflect the accounting for the pension plan for the year ended December 31, 2020.