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Hi, hope you will be in good health. I want to ask a simple question with respect to post employment benifit plans both (define contribution plan and define benifit plan )
I actually want to confirm my concept, my question is that does post employment benifit plan apply to people who have got retired and the people who have left the job and got lumpsump money from employer (golden shake hand) ?
And kindly explain me what settlement is ? Is it a golden shake hand in which u leave the job and get money from the employer for leaving that job ?
Please help me out ?
And my second is that what is entry of settlement in define benifit plan
And what entry will we make if we pay pension in define contribution plan ?
Will we make this entry
Debit Pension expense
Credit plan assetThanks
Paying a pension?
Dr Present value of future obligation, Cr Fair value of plan assets (cash)
The payment of a pension is when a person retires from working and then receives an amount (probably monthly) from the pension fund.
If you simply leave the company and go to work somewhere else, you have basically 3 choices.
1) leave your share of the pension fund in the first employer’s care and then collect your monthly amount when you reach retirement age, or
2) arrange to have your share transferred to the pension fund of your new employer, or
3) arrange to have it transferred to you so that you may administer your own pension retirement fund
Ok, my last question is about settlements in defined benifit plan
In settlement company does agreement with employee that company will not pay any post employment benifit to employee instead it pays lumsump amount to employee to keep him out from pension plan Right ?
But the employee carries on his job, right ?
And finally what entry does company make with respect to settlementDr. pv of defined benifif obligation
Credit Cash
And difference in bofh amount goes to income statement, right ?And i also have a question with respect to define contribution plan. I want to know abt journal entry when
1. When return come from investemenr or plan asset
Dr. Plan asset
Cr. Income recived
Right?2. When company pays benifit
Dr. Pension expene
Cr. Plan asset ?3. When deduction is made from employees salary for contribution purposes
Dr. plan asset
Cr. Salary exp ?And my second question is with respect to define benifit plan that do we also consider contribution from employee into plan asset alongside contribution from company, in calculating Fair value of plan asset ? I guess yes, Right ?
My third question is with respect to asset ceiling test, that does we conduct asset cieling test in this manner
Lower of :
1. Current amount of net define benifit asset
2. Pv of reduction in future contribution ?
Don’t we consider unrecognized actuarial gain and losses on remeasurement of plan asset and define benifit obligation, to keep it simple ?Why would there be a difference?
Dr Present value of future obligation
Cr CashAt the end of the year the actuary will tell you what the present value of the future obligation is and the balancing figure in that account will double enter to statement of profit or loss
Number 1 is correct
Number 2 should be:
Dr Present value of future obligations
Cr Fair value of plan assetsNumber 3 – calculate the salary, reduce the amount to be paid by deducting the employee’s contribution and pay the net amount to the employee
The amount by which you reduced the amount payable:
Dr Fair value of plan assets
Cr Present value of future obligationsThere are no longer any unrealized gains nor losses – gains and losses are taken to statement of profit or loss each year
Ok, thats great but i didnt get your point with repect to settlement lets suppose in settlement under define benifit plan company has Estimated that employee has already earned benifit of $500 at the time when company give settlement offer to employee.
Now, lets suppose company has made final settlement of $1000 as employ accepted the offer, now kindly tell me journal entries here and how will it affect profit and loss.
And does employee continue his job in settlement plan ?
My second question is that when company invest the contribution into plan asset then under defined benit and define contribution plan what entry does company make under both plans ?And i guess current service cost, past service costs and interest Cost on obligations are not part of define contribution plan. Right ? Thanks
I have my concept clear with respect to define benifit plan, but i am confused with respecf to define contribution plan
Kindly answer my following questions with respect to define Contribution plan1. After company makes contribution to its pension fund does company invest money itself and provide pension to employee itself ? If no then who does it ?
Ahh i had forgotten to ask my last question, sorry for that i should have asked it in earler message please pardon me ?
I think in define contribution plan company and employee both make contribution into fund of an investment company, my question is that offcourse employee contribution gets deducted from his or her salary and goes to fund of investment company but kindly tell me what entry will company make to record contribution of employee Thanks and sorry again ..i will be careful next time i promise“Now, lets suppose company has made final settlement of $1000 as employ accepted the offer, now kindly tell me journal entries here and how will it affect profit and loss.”
Dr PV of FO $1,000, Cr FY of PA $1,000
The fact that we’ve paid more than was “due” is automatically adjusted when the actuary tells us his estimates at the end of the year
“My second question is that when company invest the contribution into plan asset then under defined benit and define contribution plan what entry does company make under both plans ?” Dr FV of PA, Cr General Cash
” After company makes contribution to its pension fund does company invest money itself and provide pension to employee itself ? If no then who does it ?” – a company that specialises in such matters – details passed over by the company to, say, AVIVA plc
But the company could itself continue to be responsible for making the payments if they have the resources (human) and expertise to do it. I believe that the Kaplan pension fund is operated by Kaplan themselves (but I may be wrong there)
Here’s how I answered this same question from you on 22 November!:
“calculate the salary, reduce the amount to be paid by deducting the employee’s contribution and pay the net amount to the employee
The amount by which you reduced the amount payable:
Dr Fair value of plan assets
Cr Present value of future obligations”Now i understood concept of settlement, you explained it really well. But it arises a question
‘The fact the we’ ve paid more than what was due is automatically adjusted when actury tell us his estimate at end of year’
1. My question is that when we will remeasure the pv of future define benifit obligation at the year end then the gain or loss will go to other conprehensive income instead of income statement, but Bpp book says that gain on settlement will go to income statement isnt it contradiction with what you are saying as according to what you are saying gain will go to OCI rather than income statement ?
Secondly, i would like to know that iabout Define Contribution plan. In define Contrbiution plan Company’s liability is just to make contribution into investment fund, nothin else thats fine !
2(a). But my question is that will conpany cut its employee contribution from their salary and pay it into investment fund Or will current employees pay it themselves into investment fund in define Contribution plan ?
2(b). And in relation to it, are current employees bound to make contribution into investment fund or do they have choice to either to make contribution into investment fund or not to make contribution Under Define Contribition plan ?
Thanks for your kindness always.
3. If you say that in Define Contribution plan company cut the salary of its employee,and make this entry
Dr Fv of plan asset
Cr. Pv of future obligationThen i will be surprised, because i dont think so that there is anything like ” Plan asset and Pv of future defined contribution” which exist in define Contribution plan as the company is only liable to pay contribution and it records only contribution in its accounts .
Kindly provide me answer of all 3 questions.
Thanks
“And in relation to it, are current employees bound to make contribution into investment fund or do they have choice” – they have a choice
But as the money goes in, the obligation increases
Ammardar – you’re wasting a LOADS of time with these questions (both yours and mine)
If a question is asked about the intricacies of a defined contribution pension fund, I promise you that I shall eat my hat!
You are more than way too deep to be concerned at this level. Too many other matters to consider and learn
Move on!
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