Prepare the journal entry to record Switches Ltd’s current superannuation obligation for the defined contribution superannuation plan as at 30 June 2023. Calculate the estimated benefits earned by employees in the defined benefit plan as at 30 June 2023. Determine the present value of the defined benefit obligation as at 30 June 2023.
For many years Switches Ltd provided a defined benefit superannuation plan for its employees, but owing to concerns about its exposure to risk it has been phasing out the defined benefit superannuation plan and replacing it with a defined contribution superannuation plan. Most employees belong to the defined contribution superannuation plan.
Switches Ltd has paid contributions of $160,000 to the trustee of the defined contribution plan for the year ended 30 June 2023, but the contribution payable for services rendered by employees in the fund was $180,000 for the year.
There are only four employees in the defined benefit plan at 30 June 2023 and they are due to retire on 30 June 2026. The employees’ entitlement increases with the length of their employment. At 30 June 2022 they were entitled to receive three times their annual salary on retirement. By 30 June 2023 they were entitled to receive 3.2 times their annual salary on retirement. The aggregate salaries of the four members of the defined benefit fund are $200,000 for the year ended 30 June 2023 and are expected to increase by 5 percent per annum over the next three years. All members of the defined benefit fund are expected to continue employment until retirement.
The estimated benefits earned by employees who were members of the defined benefit fund were $694,574 and the present value of the defined benefit obligation was $529,887 at 30 June 2022.
The interest rate used to discount the defined benefit obligation was 7 percent at 30 June 2022 and 30 June 2023.
The defined benefit plan assets had a fair value of $529,887 at 30 June 2022. For the year ended 30 June the contributions were $20,000 and the fair value of plan assets at 30 June 2023 was $585,000. The expected return on the plan assets was 8 percent for the year ended 30 June 2023
REQUIRED
- Prepare the
journal entry to record Switches Ltd’s current superannuation obligation for the defined contribution superannuation plan as at 30 June 2023. - Calculate the estimated benefits earned by employees in the defined benefit plan as at 30 June 2023.
- Determine the present value of the defined benefit obligation as at 30 June 2023.
- Calculate the interest cost of the defined benefit obligation for the year ended 30 June 2023 and the current year service cost.
- Determine the amount of the acturial gains and losses on the defined benefit obligation and the defined benefit plan assets for the year ended 30 June 2023. LO12.7
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