Case #6: Future SalaryOn January 1, 2021, a lump-sum benefit is payable on termination of service, i.e December 31, 2025 and equal to 4% of final salary for each year of service. The salary in 1...

Case #6: Future Salary        4
CASE #6: FUTURE SALARY
Table of Contents
Solution    3
References    6
Solution
    The future value or the benefits which are available for the termination of the service retiring on 31st December, 2025 will be as follows:
    Future Value of 1 for 4 years and at the rate of 7% will be 1 x (1+0.07) ^4 = 1.3108
    Since, the salary for 1 year is given a P1000000. Therefore, the amount will be 1.3108 x 1000000 = 1310796. Hence, the benefit available on the salary at the rate of 4% will be 1000000 x 4% = 1310796 x 4% = 52432.
The calculation of benefits from 2021 till 2025 will be as follows:
     
    2021
    2022
    2023
    2024
    2025
    Prior Year
     
    52432
    104864
    157296
    209727
    Current Year
    52432
    52432
    52432
    52432
    52432
     
    52432
    104864
    157296
    209727
    262159
The benefits can be calculated from 2021 till 2025 by using the current year and present year’s value which is 52432. Therefore, at the end of 2025, the benefit derived post termination from the service is...