Changing Assumptions Ltd

question 38

Essay

Changing Assumptions Ltd.has the following details related to its defined benefit pension plan as at December 31,2013: Pension fund assets of $1,900,000 and Actuarial obligation of $1,806,317.
The actuarial obligation represents the present value of a single benefit payment of $3,200,000 that is due on December 31,2019,discounted at an interest rate of 10%; i.e.,$3,200,000 / 1.10⁶ = $1,806,317.
The pension has no unamortized experience gains or losses,and no past service costs at the end of 2013.Funding during 2014 was $55,000.The actual value of pension fund assets at the end of 2014 was $2,171,000.As a result of the current services received from employees,the single payment due on December 31,2019 had increased from $3,200,000 to $3,380,000.
Required:
a.Compute the current service cost for 2014 and the amount of the accrued benefit obligation at December 31,2014.Perform this computation for interest rates of 8%,10%,and 12%.
b.Derive the pension expense for 2014 under various assumptions about the expected return and discount rate.Complete the following table:
c.Briefly comment on the different amounts of pension expense in relation to the assumptions for expected return and discount rate.How does a change in the discount rate affect the accrued benefit obligation?

---

Definitions:

Social Learning Theory

A theory that posits individuals learn behaviors, skills, attitudes, and beliefs through observing and imitating the actions of others within social contexts.

Biofeedback Theory

A technique that teaches individuals to control bodily processes that are normally involuntary, like heart rate, using monitoring devices.

Unconditioned Stimulus

A stimulus that inherently and instinctively elicits a reaction without needing any learned behavior.

Conditioned Response

A learned response to a previously neutral stimulus that has become associated with an unconditioned stimulus.