Page 102 - Microsoft Word - 00 P1 IW Prelims.docx

Chapter 8

Example 2

An entity guarantees a particular level of pension benefit to its employees
upon retirement. The annual pension income that employees will receive is
based on the following formula:

Salary at retirement × (no. of years worked/60 years)

The entity has an obligation to pay extra funds into the pension plan to meet
this promised level of pension benefits. This is therefore a defined benefit plan.

Illustrations and further practice

Now try TYU 1 from Chapter 8.

96