Question

Q.3. Hana Company’s defined-benefit pension plan covers 180 employees. In its negotiations with the employees, Zarle Company amends its pension plan on January 1, 2014, and grants SR 94,000 of prior service costs to its employees. The employees are grouped according to expected years of retirement, as shown below.

Group	Number of Employees	Expected Retirement on December 31,
I	30	2014
II	50	2015
III	60	2016
IV	40	2017
Total	180

1. Compute per year service years and the total service years.

2. Compute annual prior service cost amortization.

Answer 1

Calculation of per year service years

Group	Number of Employees	Expected Retirement on December 31,	Service Years = Number of employees working in that year
I	30	2014	180
II	50	2015	150
III	60	2016	100
IV	40	2017	40
Total	180		470

Calculation of prior period cost amortization

Prior period cost per service year = Total Prior period service cost / Total no of service years

= 94000 / 470

= $200

Amortisation per year shall be based on number of service years per year.

Therefore the following schedule provides annual amortisation of prior period service costs

Year	Service Years = Number of employees working in that year	Prior period service cost amortisation = $200 x Number of service Years
2014	180	36000
2015	150	30000
2016	100	20000
2017	40	8000
Total	470	94000