- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 11. Employee Compensation: Post-Employment and Share-Based
- Subject 4. Other Post-Retirement Benefits
CFA Practice Question
On December 31, 2011, Staymore Inns' accumulated postretirement benefit obligation was $273 million. Retiree benefits of $27 million were paid at the end of 2011. Service cost for 2011 is $63 million.
B. $210 million.
C. $225 million.
Estimates and assumptions regarding future health care costs were revised in 2011, causing the actuary to revise downward the estimate of the APBO by $6 million. The actuary's discount rate is 8%. There were no unrecognized postretirement benefit costs at the end of 2011.
What was the accumulated postretirement benefit obligation at January 1, 2011?
A. $200 million.
B. $210 million.
C. $225 million.
Correct Answer: C
Let x equal the beginning APBO. $x + $63 (service cost) + $ (8% x x) (interest expense) - $27 (benefits paid) - $6 (estimation revision) = $273 (ending APBO). Solving for x gives $225. [in millions]
User Contributed Comments 3
| User | Comment |
|---|---|
| jkc2007 | why do we subtract the actuary change of -$6mil? i thought any loss should be added to the equation? |
| thekapila | its not loss its a gain thats why u reduce it from beginning balance. |
| kodali | negative expense, since its revised downward |