F6 Flashcards
What does Service Cost represent? pp
The increase in the PBO resulting from employees’ services rendered during the year
What is accumulated benefit obligation
Current Salary
How to calculate the interest cost in net periodic pension cost?
Beg PBO X Discount rate
How to calculate the Return on plan assets n net period pension cost?
Beg FV of plan assets X expected rate
Net transition assets and obligation effect on net periodic pension cost
Assets (Reduce)
Obligations (Increase)
J/E for pension gains and deferred tax liability
DR: Pension benefit asset/liability
CR: OCI
DR: Deferred tax expense–OCI
CR: Deferred tax liability
Company J/E for Pension plan contributions
DR: Pension benefit asset/liability
CR: Cash
Fund Status Formula
FV of Plan Assets
- PBO
=Funded Status
\+ = overfunded - = underfunded
Accounting for G/L on PP under the corridor approach formula, which is…
Unrecog. g/l - 10% of PBO or Market Related Value (greater) =Excess / Avg remaining service life =Amort of unrecog. g/l
US GAAP requires unrecognized amounts to reported in AOCI …
After Tax
Under IFRS, where is unrecognized prior sevice cost reported?
IS - Therefore no amortization
When must post retirement health benefits be fully accrued?
By the date the employee is fully eligible for the benefits
What is an attribution period?
Period of an employee’s service to which the expected postretirement benefit obligation for that employee is assigned
Employee’s compensation for future absences (mostly vacay) should be accrued if:
- Services have already been rendered, and
- Obligation relates to vested or accumulated rights, and
- Amt can be reasonably estimated, and
- Payment is probable
What does accrued compensated absences generally include?
“Vacation Pay” but not “sick pay.” Sick pay usually does not vest.
What are some examples of FS income First and Tax Return Income Later? What is the result of these?
Tax Inc Later = Future Tax Liability
EX:
- Installment Sales
- Contractors Accounting (% of completed)
- Equity Method (undistributed dividends)
What is the result of Tax return income first and FS income later? and Examples?
Tax Inc First = Prepaid Tax Benefit
-Prepaid Rent
-Prepaid Interest
-Prepaid Roylaties
“IRC uses the term Prepaid and GAAP uses the term “unearned”
What is the result of FS Expense First and Tax Return Expense Later? Examples?
Tax Deduct Later = Future Tax Benefit
- Bad dept expense (allowance vs. direct w/o)
- Est Liability/warranty expense
- Start-up expenses
What is the result of Tax return expense first and FS expense later? Examples?
Tax Deduct First =Future Tax Liability
- Dep Exp
- Amort of Franchise
- Prepaid Expense (cash basis of Tax)
What is Def Tax Liability?
Future Tax Income > Future Financial Income
What is a Def Tax Asset
Future Tax Income < Future Financial Accounting Income
PBO Calculation
Beg PBO
+ Service Cost
+ Interest Cost
+ Prior Service Cost from current period plan amendments
+ Actuarial Losses incurred in current period
- Actuarial Gains incurred in current period
- Benefits pd to retirees
= Ending PBO
Actual Return on Assets Calculation
Beg FV of plan assets \+ Contributions \+ Actual Return on Plan Assets - Benefits paid to retirees = Ending FV of plan assets
Income Statement Expense Formula (SIRAGE)
S Current Service Cost (will be given)
I + Interest Cost (Beg PBO X Discounted Rate)
R (Actual or Expected) (Expected = Beg FV of plan assets X Expected Rate)
A Amortization of Prior Service Cost (Beg unrecogn prior service cost / avg remaining service life)
G and Losses
E Amort of Existing Net Obligations or Net Asset
= Net Periodic Pension Cost
Accounting for G/L - Corridor Approach
Unrecognized g/l (beg of year) -10% of PBO or Market Related Value (greater) Excess / Avg remaining service life Amort of unrecogn g/l
J/E Pension Plan Contributions (BS acct)
DR: Pension plan asset/liab
CR: Cash
Prior Service Cost and Pension Losses (AOCI)
J/E - Recognition in period incurred
J/E - Deferred Tax Asset
Prior Service Cost and Pension Losses = decrease the funded status of the pension plan DR: OCI (goest to AOCI) CR: Pension benefit asset/liab Deferred Tax Asset DR: Deferred Tax Asset CR: Deferred Tax Benefit -- OCI
Prior Service Cost and Pension Losses
- J/E - Amortization of pension exp
- J/E - Deferred tax benefit must be removed
AMORTIZATION TO PENSION EXPENSE -reclassified out of AOCI and recog as a comp of pension expense DR: Net periodic pension cost CR: OCI - Take out of AOCI Deferred Tax benefit must be removed DR: Deferred tax benefit - OCI CR: Deferred Tax benefit - IS
Pension Gains
- J/E Amortization to pension exp
- Deferred TAx exp
AMORTIZATION TO PENSION EXPENSE DR: OCI -- Take out of AOCI CR: Net periodic pension cost Deferred tax exp must be removed from AOCI and recorded on IS DR: Deferred tax exp -- IS CR: Deferred tax exp --- OCI
DTA -
- J/E to record the taxes
- J/E to record reversal of deferred tax asset
J/E to record the taxes DR: Deferred tax asset DR: Income tax expense -- current CR: Income tax payable CR: Income tax benefit - deferred J/E to record reversal of deferred tax asset DR: Income tax expense - deferred CR: Deferred tax asset
DTL
- J/E to record the taxes
- J/E to record reversal of deferred tax liability
J/E to Record the taxes DR: Income Tax Expense - Current (IS) DR: Income Tax Expense - Deferred (IS) CR: Deferred Tax Liability (BS) CR: Income Tax Payable (BS) J/E to reverse deferred tax liability DR: Deferred tax liability CR: Income Tax Benefit - deferred
Valuation Allowance -
Valuation Allowance - if all of deferred tax asset will not be realized (NOT Permitted by IFRS)
J/E to record taxes
DR: Deferred tax asset
DR: Income Tax Expense - current
CR: Deferred tax asset valuation allowance
CR: Income tax benefit - deferred
CR: Income Tax payable
COMPENSATION FOR FUTURE ABSENCES
Liability Recognition~
Liability Recognition
- Services have already been rendered
- Obligation relates to vested or accumulated rights, and
- Amount can be reasonably estimated, and
- Payment is probable
How are vacation days and sick days accrued?
Vacation days are typically accrued- Sick days are usually not because they don’t vest
Intraperiod Tax Allocation
Intraperiod Tax Allocation
I - Gross, then tax
DEA and PUFER – Net of Tax
