Question

LARFAGE is French industrial company specializing in three major products: cement, construction aggregates, and concrete. Lafarge Zambia operates 2 integrated cement plants (situated in Ndola and Lusaka) with a total production capacity of 1.4 million tonnes per annum. The 440 direct employees supported by several hundred more contracted employees. As the key enablers of its strategy and vision, its people are at the heart of everything the company does. The Lafarge Group aspires to build and sustain a Learning Organization focused on achieving sustainable transfer of knowledge, skills, and behaviors. Further the company ensures that its employee’s social security protection is done especially after, retirement. In line with this, LARFAGE introduced a defined benefit pension plan for its employees, on January 1, 2019. This pension is managed by ZSIC Life. ZSIC has provided the following selected data for the years 2019, 2020, and 2021.

	2019	2020	2021
		For the year ended December 31
Plan assets at fair valua	100,000	170,000	360,000
Defined benefit obligation	120,000	400,000	648,000
Employers funding contribution	100,000	120,000	210,000
actual return on plan assets	10%	10%	10%
discount (interest)	13%	11%	8%
service cost ( net periodic pension expense)	120,000	170,000	238,000
Benefits paid	-	60,000	37,000

LARFAGE amended the pension plan on January 1, 2020, to grant employees past service benefits with a present value of K80, 000.At the end of the year 2020 Changes in actuarial assumptions establish the end-of-year defined benefit obligation at K650, 000.

Required

1. a. For the 3 years 2019, 2020 and 2021 calculate the amount to be recognised as an expense, asset and liability relating to the pension fund and Prepare all the necessary journal entries for the years 2019, 2020, and 2021
2. Calculate the fund status for years 2019, 2020, and 2021 and advice LARFAGE employees on whether they anticipate to experience difficulties in getting their terminal benefits when they retire

Answer 1

Ans. A &B Discount amount 15600 44000 51840 service cost 1,20,000 1,70,000 2,38,000 1,00,000 1,20,000 2,10,000 Employers funding contribution Benefit obligation 60,000 37,000 650, 000 total 2,95,600 3,71,000 4,99,840 10000 17000 36000 actual return on plan assets After deduction total 2,85,600 3,54,000 4,63,840 2019 Pension expense a/c dr 285600 pension liability 125600 Amount pririor to service cost 160000 2020 Pension expense a/c dr 354000 pension liability 337000 Amount pririor to service cost 17000 Pension expense a/c dr 463840 pension liability 427840 Amount pririor to service cost 36000

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