Actuarial calculation of the defined benefit obligation of Cascada Ltd.'s pension plan at 31 December 20X3 was 81,000. The discount rate at 31 December 20X3 was 4% (resulting in an interest expense of 3,240 for 20X4) . In 20X4, Cascada Ltd.'s employees accrue service cost of 10,000 and pension benefits paid are 13,000. If no change in the actuarial assumptions occurred in 20X4, Cascada Ltd.’s defined benefit obligation as at 31 December 20X4 would be:
A. 71,240 [(81,000 + discount rate - service cost) – benefits paid]
B. 81,240 [(81,000 + discount rate + service cost) – benefits paid]
C. 64,760 [(81,000 - discount rate) – benefits paid]
Cascada Ltd.'s defined benefit obligation as at 31 December 20X4 would be calculated as follows:
The obligation at the beginning of the year (31 December 20X3) is given as 81,000. The interest expense for the next year is calculated based on the obligation at the beginning of the year, which is 3,240 (4% of 81,000). The service cost for the employees for the year is 10,000, and the benefits paid out during the year were 13,000.
Therefore, the calculation for the defined benefit obligation as at 31 December 20X4 would be:
81,000 (beginning obligation) + 3,240 (interest expense) + 10,000 (service cost) - 13,000 (benefits paid) = 81,240
So, the correct answer is: B. 81,240 [(81,000 + discount rate + service cost) – benefits paid]
