Financial Accounting: Liabilities & Equities (FA3) Exam Review

FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc.
4 a.
(1) Current service cost $ 150,000
(1) Interest on accrued benefit obligation [(800,000 + 1,200,000) × 10%] 200,000
(1) Expected return on plan assets ($500,000 × 0.11) (55,000)
(1) Amortization of past service cost ($1,200,000 / 8) 150,000
Pension expense $ 445,000
2 b. Accrued benefit obligation as at December 31, 2002 (as per above) $ 2,325,000
4 c. December 31, 2003
(1) Pension expense ........................................................ 445,000
(1) Deferred pension asset.................................................. 445,000 1
(1) Deferred pension asset ............................................ 400,000 1
(1) Cash..... ........................................................................................... 400,000
1 May be combined into one entry
6 d.
(2) The accumulated benefit method calculates the contribution that an employer must
make in order to fund the pension to which the employee is currently entitled, based on
the years of service to date and on their current salary.
(2) The projected benefit/unit credit method calculates the required funding based on the
years of service to date but on a projected estimate of the employee’s salary at the
retirement date.
(2) The level contribution method projects both the final salary and the total years of
service and then allocates the cost evenly over the years of service.
Part 9: Module 8 – Accounting Changes
Blueprint: 6-10%
NOTE: Assume IFRS
a. Frank Inc. purchased equipment on January 1, 2000 for $100,000. The company
estimated that the equipment had a 5-year useful life and no salvage value. Frank
amortized the equipment using the straight-line method for 4 years. During 2004, Frank
re-estimated the total useful life of the equipment to be 8 years. What is the amount of the
amortization expense in 2004?
1) $ 2,500
2) $ 5,000
3) $ 8,000
4) $ 12,500
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