F-6 Pensions & Tax Accounting Flashcards

1
Q

What is a pension plan?

A

An agreement in which the employer provides employees with defined or estimated retirement benefits in exchange for current or past services

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2
Q

What is a defined benefit plan

A

The benefits of the employee receives at retirement or determined by formula. It is the sponsor company’s responsibility to ensure that contributions to the plan or sufficient to pay benefits as they come due

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3
Q

What is a defined contribution plan

A

The contributions that the sponsor company makes to the plant or determined by formula. The employees retirement benefits are based on the amount of funds in the plan

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4
Q

Is the pension plan and the sponsoring company to separate legal entity is or the same legal entity

A

They are two separate legal entity’s

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5
Q

What is the main accounting problem arose rising for defined benefit plans

A

Defined benefit plans issues are caused by necessary use of estimates and assumptions which affect the timing and measurements a pension costs gains and losses from investments of plan assets and liabilities

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6
Q

What does the term “funding” refer to

A

The term funding refers to the sponsor company making contributions to the pension plan.

The plan is funded when the employer makes cash contributions to the plan. The amount fund it does not have to equal the pension plan expensive for the period

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7
Q

What is an overfunded plan and an underfunded plan

A

And overfunded plan has assets that exceeds its liabilities where is it underfunded plan has liabilities that exceeds its assets

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8
Q

What are the two types of pension plans that are non-gap methods

A

Pay-as-you-go
Terminal funding

Both are cash basis

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9
Q

What are the two gap methods for pension plans

A

Defined contribution plan(401k)

Defined benefit plan (pension plan)

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10
Q

What is accumulated benefit obligation (ABO)

A

Actuarial present value of benefits attributed by a formula based on current and past compensation levels. And ABO differs from a PBO only in that the ABO includes no assumption about future compensation level (uses current salaries)

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11
Q

What is a projected benefit obligation PBO

A

The actuarial present value of all benefits attributed by the plans benefit formula to employee service rendered prior to that date.

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12
Q

Under IFR S, what is the defined benefit pension plan liability

A

Define benefit obligation DB

The DBO and the PBO are calculated in a similar manner

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13
Q

When our pension plan benefits vested

A

Pension plan benefits are vested when employees have earned their benefits by reason of having reached retirement age and or having otherwise met unique pension plan requirements. The benefits are vested whether or not the person is actually retired, and they are not contingent on remaining in the service of the employer. Generally pension plan documents require money to be left in the plant until retirement

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14
Q

What is service costs in a pension plan

A

Service causes the present value of all pension benefits earned by company employees in the current year. Is provided by the actuary. The service cost components increases the PBO

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15
Q

What is prior service cost

A

The cost of benefits based on past services granted for:

  • Service prior to the initiation of a pension plan that employees retroactively receive credit for when the plan is implemented
  • subsequent plan amendment, reflecting you were increased benefits, but also is applied to service already provided

Prior service cost increases the PBO in the period of the plan initiation or amendments and should be amortized to pension expense over the future service. Of the affected employees

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16
Q

What our benefit payments

A

Benefits are paid to pension plan participants after retirement. The payment of pension benefits reduces the PBO and reduces plan assets

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17
Q

What is the formula that can be used to calculate the PBO

A
Beg PBO
\+ service cost
\+ interest cost
\+ prior service cost
\+actuarial losses
- actuarial gains
- benefits paid
-——-—————
End PBO
————————-
————————–
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18
Q

What our plan assets

A

Plan assets of the assets, generally stocks, bonds, and other investments, set aside to provide for pension benefits. Plan as it should be reported at fair value. Plan assets increase each. My contributions to the pension plan and by The return on the plan assets. Plan assets decrease each. By the amount of benefits paid to retired employees

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19
Q

What is the formula that can be used to calculate the ending fair value of plan assets or to solve the actual return on plan assets

A

Beg FV of plan assets
+ contributions
+ actual return in plan assets
- benefits paid to retirees

= End FV of plan assets

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20
Q

How to calculate the US GAAP pension expense (AKA “net periodic cost”)

A

SIR AGE

Current service cost
Interest cost

Amortization of service cost
and losses
Amortization of existing net obligation or net assets
=net periodic pension cost

Under you S GAAP all the components of that periodic pension cost must be aggregated and presented as one amount of income statement

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21
Q

Under I FRS how is the defined-benefit cost calculated

A

Under IRS, defined benefit cost include service costs and that interest on the defined-benefit liability (asset). The components of defined-benefit costs are generally between separately on the inconvenience: there is no requirement that these amounts the aggregate in presented as one amount

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22
Q

What is the current service cost

A

The present value of all benefits earned in the current. Period in other words, the increase in the projected benefit obligation resulting from employee service in the current period

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23
Q

What is the interest cost

A

Also known as the discount rate and settlement rate

Formula

Beg PBO
X discount rate
= interest cost

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24
Q

What is the return on plan asset?

A

US GAAP allows companies to offset pension expense by either the actual return on plan assets or the expected return on the plan asset

Actual return on plan asset (calculated based on FV if plan asset at the beg and end of the period, and for contributions and benefit payments

Or

Expected return on plan asset (smooth)

Beg FV of plan asset
X expected ROR on plan asset
= expected return on plan asset

When companies use the expected return on plan assets to calculate pension expense, the difference between actual and expected return must be recognized in other comprehensive income each. And then amortize to pension expense overtime with any actuarial gains or losses

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25
Q

What is the amortization of unrecognized prior service cost

A

Under US GAAP, in the period that a pension plan is initiated or amended, the resulting prior service cost increases the PPO and is recorded as unrecognized prior service calls in OCI. The unrecognized prior service cost in accumulated OCI income is amortized to pension expense over the plan participants remaining years of service

Beginning unrecognized prior service cost
/average remaining service life
=Amortization of prior service cost

26
Q

Under IFR S how is the prior service cost accounted for

A

When I plan as amended, past service cost increases the DBO and is reported as defined benefit service cost on the income statement. Under IFR S, past service cost is not booked to OCI

27
Q

What are the two sources that gains and losses arise

A

1) The difference between the expected an actual return on plan assets when the expected return on plan assets is used to calculate pension expense
2) changes in actuarial assumptions

28
Q

Under US GAAP, entities have two choices to account for gains and losses what are they

A

1) recognize gains and losses on the income statement in the. Incurred

Or

2) recognize the gains and losses and other OCI in the. Incurred and then amortize the unrecognized gains and losses to pension expense overtime using the Corridor approach:

Under the Corredor approach, and entities on the net unrecognized gain or loss is amortized over the employees average remaining service., If as of the beginning of the year, this amount exceeds 10% of the greater of the beginning of the year balances of:

(A) market related cake of plan assets = assets
(B) projected benefit obligation (PBO) = liabilities

Formula
Unrecognized gain or loss
<10% of PBO or market related value> (greater)
= excess
/ avg remaining service life
= amortization of unrecognized gain or loss

29
Q

The funded status is required to be amortized over what period of life?

A

Over the greater of 15 years

Or

The average remaining job life of the company’s employees

Formula
PBO
- FV plan asset
= initial unfounded obligation
/ 15 years or avg employee job life (greater)
= min amortization
30
Q

What is the funded status of a pension plan calculated formula?

A

FV of plan asset
- PBO
= funded status

31
Q

What is a pension plan asset?

A

A positive funded status

Noncurrent asset

32
Q

What is a pension plan liability?

A

Negative funded status.

All underfunded pension plans are aggregated and reported as a current liability, a noncurrent liability, or both

33
Q

The beg and end funded status of a Defined benefit pension can be reconciled as follows:

A
Beg funded status
\+ contribution
- Service cost (S)
- interest cost (I)
\+ expected return on plan assets (R)
- prior service cost incurred in the current period (A)
\+ net gain incurred during current period
- net losses incurred
= end funded status

(Opposite signs of the net periodic pension cost (pension expense)

34
Q

Under US GAAP the funded status of a pension plan due to prior service cost and pension gains and losses should be reported where on the balance sheet?

A

OCI

35
Q

Under IFR S, the funded status of the pension plan is reported on the balance sheet as what

A

Then that’s defined benefit liability/asset

36
Q

Under IFR S how is the net defined benefit asset reported

A

The amount of the acid cannot exceed the present value of future economic benefits available to the NC in the form of cash refunds a reduction in future contributions that results from the overfunding. I FRS do not specify whether an entity should classify the net defined benefit liability/asset as current or nine current

37
Q

Under US GAAP where does the required changes in the funded status of pension plan due to prior service class and pension gains and losses be reported

A

In other comprehensive income in the. Incurred

Dr. OCI
Cr. Pension benefit asset/liability

A deferred tax asset may also be recognized:

Dr. deferred Tex asset
Cr. Deferred tax benefit - OCI

38
Q

What is the journal entry with prior service costs, pension losses, and any remaining transition obligations are amortized?

A

They are reclassified out of AOCI and recognized as a component of pension expense

Dr net periodic pension cost
Cr OCI

Deferred tax
Dr deferred tax benefit - OCI
Cr deferred tax benefit - income statement

39
Q

Under US GAAP the measurement date of the plant assets and benefit obligations of a defined benefit pension plan must be what

A

Must be a license either way yours balance sheets with a few exceptions:

Went to plan sponsored by a subsidiary that has a different fiscal year and the parent in the subsidiary plan acid and benefit application to be measured as of the subsidiary balance sheet date

It would’ve plan is sponsored by an equity method investee that has a different fiscal year end from the investors fiscal year and then the investees plan assets and benefit obligations can be measured as of the date of the investees financial statements used to fly the equity method

40
Q

What are pension settlements

A

Sell assets and buy a Annuity contracts

41
Q

What are pension curtailment’s

A

Curtailment’s are events that reduce the expected remaining years of service for presents employees or eliminate accruals of defined benefits for future service of a significant number of employees

42
Q

What are termination benefits under a pension plan

A

Termination benefits arise when employees are paid to terminate their rights to future pension payments

Lump sum payments
+ PV termination benefits
= special term benefit

Dr special team benefit expense
Cr special term benefit liability

43
Q

Under US GAAP what our pension plan disclosures

A

Rule of thumb:
More disclosure is better
Disclose as much as reasonably possible

44
Q

Under US GAAP financial statements from the pension plan itself are required. What are the required financial statements

A

Statement of net asset available for benefits

Statement of changing that asset available for benefit

Statement of accumulated plan benefits

Statement of changes in accumulated plan benefit

A statement of cash flow’s is not required, but maybe presented if it provides relevant information about the ability of the plan to meet future obligations

45
Q

Doubt under US gap amortization of unrecognized prior service cost is calculated how

A

By assigning an eagle of out of the cost to the future. The service of each employee at the date of amendment to the plan

46
Q

Under US GAAP the accumulated benefit obligation is what

A

The present value of future retirement payments attributed to the pension benefit formula to employee service rendered prior to date based on current and past compensation levels

47
Q

Under US GAAP what costs or calculation must be reported in a OCI that attacks

A

Unrecognize prior service cost
Unrecognized transition obligations
Unrecognized net gates or losses

48
Q

Under pensions when must deferred taxes be considered when recording

A

Net periodic pension cost and changes in pension plan funded status due to prior service cost, net gains and losses, and net transition costs and obligations.

49
Q

Under IFR S re-measurements of the defined benefit liability assets including read measurements from actuarial games are reported where

A

They are reported an OCI and are not reclassified/amortized to the income statement

50
Q

Under IFR S, past service cost is recognized where

A

On the income statement in the period of the plan amendment

51
Q

Pension plan investment assets are reported in that the defined-benefit plans financial statements how

A

At fair value

52
Q

If a company has multiple defined benefit pension plans the funding stand it status of each plan is calculated how

A

It must be calculated separately

53
Q

Provide some examples of post retirement benefits other than pension plans

A
Healthcare insurance
Life insurance
Welfare benefits
Tuition assistance
Legal services
Daycare
54
Q

The cost of retiree health and other post retirement benefits must be accrued if

A

The obligation attributable to employees services already rendered

The employees rights accumulate or vest

Payment is probable

The amount of the benefits can be reasonably estimated

55
Q

What is accumulated post retirement benefit obligation APBO

A

The APBO is the present value of future benefits that have vested as of the measurement data. The APBO is discounted using the assumes discount rate

56
Q

What is the expected post retirement benefit obligation EPB out

A

The present value of all future benefits, expected to be paid as of the measurement date it includes the amount that has vested plus the present value of expected future benefits that have not yet vested

57
Q

What is the attribution.

A

The post retirement benefit obligation is accrued during the period the employee works. Generally beginning of the employees date of hire and ending at the full eligibility date not when retired or paid it ends when vested

58
Q

What are post employment benefits

A

These are benefits paid by companies to former or in active employees during the period after the employment and before their retirement this is not the same as post retirement benefits. These are like severance packages

59
Q

Liabilities for post employment benefits are crude if all of the following conditions are met

A

The employers obligation is attributable to services already rendered

The obligation relates to rights that vest or accumulate

Payments of the compensation is probable

The amount can be reasonably estimated

Dr. severance expense
Cr severance liability

Footnote disclosure is what is required for all four criteria are not met

60
Q

How are deferred compensation arrangements accounted for

A

Deferred compensation arrangements are accounted for at the present value of the benefit expected to be provided in exchange for the employees service to date. Benefit should be recognized in that year.

61
Q

And employer is not required to accrue liability for non-vesting accumulated rights to receive sick pay benefits because why

A

There is a little degree of lot reliability of estimates a future sick pay and the cost of making in evaluating those estimates do not justify making her cruel