F6 Flashcards
What is a funded pension plan?
sponsor company makes contributions
What are the non-GAAP methods for pension plans?
pay as you go (expense) or terminal funding (buy annuity)
What are the GAAP methods for pension plans?
Defined contribution or defines benefit plan
What is accumulated benefit obligation?
ABO = use current salary
What is projected benefit obligation?
PBO = guess future salary
What are prior service costs?
costs of benefits on past services b/c retroactive application of plan initiation or amendment
How do you calculate PBO?
Beg + service cost + interest cost + prior service cost + actuary losses – actuary gains – benefits paid = end
Pensions v. Leases.
Pensions are Great! Leases use “lesser”
How do you calculate Net Periodic Pension Cost?
SIR AGE = Service Cost + Interest Cost – Return on Plan Assets + Amort PSC – Gains (Losses) + Amort Existing L or A = Net Periodic Pension Cost
What is the S in SIR AGE?
S = Service Cost = given = PV of benefits earned in current period
What is the I in SIR AGE?
I = Interest Cost = Beg. PBO * Discount Rate %
What is the R in SIR AGE?
R = (Return on Plan Assets) = actual or expected
How do you calculate the actual return?
Beg FV + Contributions + Actual Return – Benefits Paid = End FV
How do you calculate the expected return?
Beg FV x expected rate = expected return
What is the A in SIR AGE?
A = Amort of Unrecognized PSC = Beg. Unrecognized PSC / Avg remaining service life
What is the G in SIR AGE?
G = (Gains) and Losses = diff between actual and expected return, or G/L from change in actuary assumptions
How do you account for Gains or Losses
I/S or OCI w/ corridor approach
What is the corridor approach?
Unrecognized G/L – greater of 10% of (PBO or market relative value) = excess / avg remaining service life = amort G/L
What is the E in SIR AGE?
E = Amort Existing Net L or A = amort over greater of (15 years or avg remaining service life)
Where are unamortized AGE recorded?
AOCI
What is the funded status?
FV – PBO
What is a pension plan asset?
noncurrent, overfunded: FV > PBO
What is a pension plan liability?
Current, noncurrent, or both. underfunded: FV < PBO
How do you calculate ending funded status?
Beg Funded Status + Contributions – SIR AGE = End funded status
What is a pension settlement?
sell assets & buy annuity contracts
What is curtailment?
service life decreases, or future benefits decrease
What are termination benefits (formula)?
lump sum payments + PV termination benefits = special term benefit
Disclosure
More = better. NOT repeat or too positive
What are the requirements for accrual/liability recognition?
obligation is for services already rendered. Employee rights accumulate/vest. Payment is probable. Benefit can be reasonably estimated
What is APBO?
Accumulated Postretirement Benefits Obligation = PV of future benefits known today
What is EPBO?
Expected Postretirement Benefits Obligation = PV of future benefits expected = APBO + PV unknown
What is the attribution period?
hire date through full eligibility date
How is the Net Postretirement Benefit Cost calculated?
SIR AGE = Service Cost + Interest Cost – Return on Plan Assets + Amort PSC – Gains (Losses) + Amort Existing L or A = Net Periodic Pension Cost
What is the E in SIR AGE for postretirement benefits?
E = Expense/Amort of Transition Obligation = expense full amt or (min amt = APBO – FV = Initial unfunded / 20 yrs or avg service life remaining)
What is the liability recognition for deferred compensation?
at PV of benefits expected to date
When are sick pay benefits accrued?
only when vested
How is intraperiod tax allocation recorded?
IDEA & OCI (PUFE)
What are the differences for interperiod tax allocation?
Permanent = current, not deferred. Temporary = current & deferred
What is the income tax expense?
Expense = owe now (TI * tax %) + owe later (temp diff * future enacted %)
What is a deferred tax liability (DTL)?
when tax deduct first, or F/S income first
What is a deferred tax asset (DTA)?
gift certificate. Tax paid > expense. Use valuation allowance
What is a valuation allowance?
Contra-account to DTA. Used if part of DTA is more than likely (>50%) not going to be used (IFRS = probable)
What are uncertain tax provisions?
aggressive income tax positions
What are the steps in uncertain tax provisions?
Step 1) test more likely than not if taken to highest court. Step 2) recognize largest tax benefit w/ 50%+ likelihood
How do you treat changes in the enacted tax rate?
change in estimate. To IDEA
How are the DTL/A classified?
Follow mama. Noncurrent/current. If no mama, use reversal date expected
How are the DTL and DTA netted?
net current. Net noncurrent
