F6 Flashcards
What is a noncontributory plan?
*a plan where only the employer contributes
Accumulated Benefit Obligation vs. Projected Benefit Obligation
ABO = current salary PBO = projected future salary
DBO = IFRS = PBO
Prior Service Cost Treatment
*increase PBO and are amortized over the future service periods of affected employees
Actuarial Gains/Losses Treatment
Gains = decrease PBO Losses = increase PBO
Components of Pension Expense
S ervice cost
I nterest cost
A mortaization of prior service costs
and losses
E xisting net obligation amortization (rarely seen)
Treatment of Prior Service Cost under IFRS
*it is recognized in earnings rather than booked to OCI
Corridor Approach
Excess of 10% of the greater of PBO or Plan Assets is amortized over the remaining service life
Amortization of Existing Net Obligation
*greater of 15 years or average remaining job life of employees
When are costs/gains recognized in earnings rather than OCI with relation to tax assets or liabilities?
*when they are being amortized in the current period or if it relates to the current period pension expense
Defined Benefit Pension Plan Funding Status
Overfunded = non-current asset Underfunded = current, noncurrent, or both liability
Which two items directly reduce pension expense?
*returns and amortization of gains
Which account to DR or CR with relation to pension items
*DR or CR the net effect (if it is underfunded, use the pension benefit liability)
Journal entry to reclassify something out of OCI relating to pension expenses
DR: deferred tax benefit - OCI
CR: deferred tax benefit - income statement
*don’t touch the asset or liability account
Pension Settlement, Curtailment, and Termination
Settlement: sell assets and buy annuity
Curtailment: reduce expected remaining years of service or eliminate future accruals for many employees
Termination: lump sum payments + PV termination benefit
**DR: Special term benefit expense
**CR: Special term benefit liability
Two Key Items for Pension Disclosures
- do not repeat information
- do not predict/project good items
*must also describe components of SIR AGE
Disclosure Requirements for Pensions of Nonpublic Entities
*permitted to present less information, essentially eliminating the reconciliations required
Should the pension plan present its own financial statements?
Yes, GAAP requires it because the plan and the sponsoring company are two separate entities
Postretirement Benefits other than Pensions
Accrual period = begins at the employee’s date of hire and ends at the FULL ELIGIBILITY DATE
APBO vs EPBO
APBO: used for interest cost calculation
EPBO: accumulated costs and future benefits that have not yet vested
“E” Component of Pensions & Postretirement Obligations
Pension: amortize over greater of 15 years or remaining service life
Postretirement obligations: OPTION
1. expense now
2. amortize over a minimum of 20 years
Formula for Funded Status of Postretirement Obligations
Fair value of plan assets
= funded status
*categorization (current vs noncurrent) is the same
Unique Disclosure Rule for Postretirement Obligations
*effect on APBO of a 1% increase and a 1% decrease in health care cost trend rate
Other Deferred Compensation and Benefits
Vacation: vested or accrued
Sick days: vested only
*estimates must be reliable
Shortcut to Finding Total Tax Expense
- tax now + tax later = tax expense
* DO NOT TAKE BOOK INCOME AND MULTIPLY IT BY THE TAX RATE
Investment interest expense is limited to __________
*net investment income
Estimated costs/liabilities will result in…
deferred tax assets
DTL vs DTA
DTL = future tax accounting income > future financial accounting income DTA = future tax accounting income < future financial accounting income
When reversing DTAs and DTLs, make this type of entry
*reverse the original journal entry, including the asset or liability
Valuation Allowance for DTAs
*more likely than not that part of all of the deferred tax asset will not be realized
Getting rid of a DTA has what effect on tax expense?
It increases the expense, but not the payable
decreases the deferred amount
Impact of a Valuation Allowance for DTAs
*decreases the deferred income tax and credits a valuation account
Uncertain Tax Positions
- more likely than not test
- measurement of cumulative amount over 50% that could be realized (recognize savings of this amount rather than the full amount)
* *difference should be plugged to a liability
Which tax rate is used when calculating deferred taxes?
the ENACTED RATE
NOT: anticipated, proposed, unsigned
*must be signed into law
Balance sheet presentation of deferred taxes
*based upon the asset or liability that created the change; otherwise it is the year in which it reverses
- net all current assets/liabilities
- net all noncurrent assets/liabilities
Presentation of Deferred Taxes for IFRS
*always noncurrent
Investee’s Undistributed Income
- find the difference between net income and dividends
- account for the dividend’s received deduction (1 - exclusion %)
- multiply it by the tax rate
- creates a deferred tax liability
*dividends received deduction is a permanent difference
Income Tax Disclosures
- components of a net deferred tax liability or asset
- valuation allowance for deferred tax assets
- benefits of NOL carryforwards
