F-6 2013 Flashcards
Define two types of pension plans.
Defined Contribution Plan: Amount of contribution is specified. Defined Benefit Plan: Amount of benefit to be received is specified or estimated.
What is the difference between projected benefit obligation (PBO) and accumulated benefit obligation (ABO)? What is the name for the pension plan liability under IFRS?
ABO: Actuarial PV of benefits attributed by the pension benefit formula to employee service rendered before a specific date based on employee service and current and past compensation levels. PBO: Actuarial PV of all benefits attributed by the pension benefit formula to employee service rendered before a specific date based on assumptions as to future compensation levels. Under IFRS, the pension plan liability is the defined benefit obligation (DBO).
What is the formula used to calculate the ending projected benefit obligation (PBO)?
Beginning PBO + Service cost + Interest cost + Prior service cost from current period amendments + Actuarial losses incurred in the current period - Actuarial gains incurred in the current period - Benefits paid to retirees = Ending PBO.
What is the formula used to calculate the ending fair value of plan assets?
Beginning fair value of plan assets + Conributions + Actual return on plan assets - Benefit payment = Ending fair value of plan assets.
Name the components of net periodic pension cost (net pension expense) under US GAAP? (SIR AGE)
Service cost, Interest cost, Return on plan assets, Amortization of prior service cost, Gains and losses, Amortization of Existing unrecognized net obligation or unrecognized net asset at implementation.
How are unrecognized gains and losses amortized to pension expense under US GAAP?
Using the corridor approach. The formula is: Unrecognized gain or loss - = Excess + Average remaining service life = Amortization of unrecognized gain or loss.
How is funded status calculated and reported under US GAAP?
Companies with defined benefit pension plans must report funded status on the balance sheet. Fair Value of Plan Assets - = Funded Status. Under US GAAP: Overfunded: (Fair value of plan assets > PBO). Report as a noncurrent asset. Underfunded: (Fair value of plan assets
How is funded status calculated and reproted under IFRS?
Defined Benefit Obligation - = Funded Status. Under IFRS: Overfunded: (DBO Fair value of plan assets). Report as a net defined benefit liability. IFRS does not specify whether the asset/liablity should be reported as current or noncurrent.
How are changes in the funded status from pension gains and losses and prior service costs reported on the financail statemetns under US GAAP and IFRS?
US GAAP: Both are recognized as components of other comprehensive income in the period incurred, with the related tax effects. Then reclassified to net periodic pension cost as amortized. IFRS: Prior (past) service cost is reported as a component of service cost on the income statement in the period incurred. Pension gains and losses are reported in other comprehensive income in the period incurred and are not reclassified (amortized) to the income statement.
Define pension settlements and pension curtailments.
Settlements: A transaction that (a) is an irrevocable action, (b) relieves the employer of primary responsibility for a pension benefit obligation, and (c ) eliminates significant risks related to the obligation and the assets used to effect the settlement. Curtailments: An event that significantly reduces the expected years of future service of present employees or eliminates for a significant number of employees the accrual of defined benefits for some or all of their future services.
What are some of the requried disclosures for a defined benefit plan? (I dread having to disclose this stuff!)
Description: A description of funding policies and types of assets held. Reconciling Items: A schedule reconciling funded status of the plan including all reconciling items (FVPA, PBO, etc.). Expense and OCI Components: Components of net periodic pension cost (pension expense) and accumulated OCI. Actuarial Assumptions. Discount Rate: The weighted-average discount rate.
What are the componensts of net periodic postretirement benefit cost (postretirement expense) under US GAAP?
Service cost, Interest cost, Return on plan assets, Amortization of prior service cost, Gains and losses, Expense/Amortization of transition obligation.
How do we account for postretirement benefits on the balance sheet under US GAAP?
The funded status of the postretirement benefit plan must be shown as a noncurrent asset (if overfunded) or a current liability, a noncurrent liablity, or both (if underfunded). Changes in funded status due to net gains or losses, prior service costs, or net transition assets or obligations should be shown in accumulated other comprehensive income until amortized to net periodic postretirement benefit cost.
What are some of the required disclosures for postretirement benefit plans? (I dread having to disclose this stuff!)
Description: A description of the plan. Reconciling Items: A schedule reconciling funded status of the plan, including all reconciling items (FVPA, APBO, EPBO, etc.). Expense and OCI Components: Components of net periodic postretirement benefit cost, including all components, and accumulated OCI. Actuarial Assumptions: Assumptions and rates used in computing APBO and EPBO, including assumed health care cost trend rate, effect of 1% increse/decrese in assumed health care cost trend rates. Discount Rate: The weighted-average discount rate.
List the four criteria for recognizing postemployment benefits and compensation for future absences.
Employees’ servcies already rendered; Rights vest or accumulate; Payment of the compensation is probable; Amount can be reasonably estimated.