Recently the company decided to initiate a pension plan as part of its employee
ID: 2618305 • Letter: R
Question
Recently the company decided to initiate a pension plan as part of its employee compensation package. The pension plan will start on January 1, 2019. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). The following estimates have been collected:
Average length of time to retirement 15 years
Expected life duration after retirement 10 years
Total pension payment expected each year
after retirement for all employees $800,000 annually
On the basis of the information above, determine the present value of the pension liability. Assume the payment is made at the end of the year and the interest rate is 8 percent.
Explanation / Answer
Present Value of Pension Liability can be estimated as under :
YEARS OBLIGATION PRESENT VALUE FACTOR PRESENT VALUE 1 0 0.926 0 2 0 0.857 0 3 0 0.794 0 4 0 0.735 0 5 0 0.681 0 6 0 0.630 0 7 0 0.583 0 8 0 0.540 0 9 0 0.500 0 10 0 0.463 0 11 0 0.429 0 12 0 0.397 0 13 0 0.368 0 14 0 0.340 0 15 0 0.315 0 16 800000 0.292 233512 17 800000 0.270 216215 18 800000 0.250 200199 19 800000 0.232 185370 20 800000 0.215 171639 21 800000 0.199 158925 22 800000 0.184 147152 23 800000 0.170 136252 24 800000 0.158 126159 25 800000 0.146 116814 $1692238Related Questions
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