On January 1, Year 1, the Hoverman Corporation made amendments to its defined benefit pension plan, resulting in $150,000 of pas

t service costs. The plan has 100 active employees with an average expected remaining working life of 10 years. There currently are no retirees under the plan. Required: Determine the amount of past service costs to be amortized in Year 1 and subsequent years under (a) IFRS and (b) U.S. GAAP.

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Which one of the following will produce the lowest present value interest factor? A. 6 percent interest for 5 years B. 6 percent

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Answer:

Option E. 8 percent interest over a period of 10 years

Explanation:

The formula for Present Value Impact Factor is

PVIF = a / (1 + r)^ n

Where

a represents the future amount to be received

r stands for the discount interest rate

and n signifies the number of years or any time period

If the denominator grows larger, the Present Value Interest Factor will decrease, implying that the highest denominator occurs at 8 percent interest for 10 years. Therefore, option E is correct.

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