F6

Question 1

Defined Contribution Plan: Amount of contribution is specified. Defined Benefit Plan: Amount of benefit to be received is specified or estimated.

Answer 1

Pension Plans

Question 2

ABO- Actuarial PV of benefits attributed by the pension benefit formula to employee service rendered before a specified 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 specified date based on assumptions as to future compensation levels. Under IFRS, the pension plan liability is the defined benefit obligation (DBO).

Answer 2

Pension Plans

Question 3

Beginning PBO plus Service Cost plus Interest cost plus Prior service cost from current period amendments plus Actuarial losses incurred in the current period minus Actuarial gains incurred in the current period minus Benefits paid to retirees equals Ending PBO.

Answer 3

Pension Plans

Question 4

Beginning fair value of plan assets plus Contributions plus Actual return on plan assets minus Benefit payment equal Ending fair value of plan assets.

Answer 4

Pension Plans

Question 5

Service cost, Interest cost, Return on plan assets, Amortization of prior service cost, Gains and losses, Amortization of Existing unrecognized net obligations or unrecognized net assets at implementation.

Answer 5

Pension Plans

Question 6

Using the corridor approach. The formula is: Unrecognized gain or loss minus 10% of PBO OR Market related value (greater)> = Excess divided by Average remaining service life equal Amortization of unrecognized gain or loss.

Answer 6

Pension Plans

Question 7

Companies with defined benefit pension plans must report funded status on the balance sheet: Fair value of Plan Assets less PBO equal Funded Status. Under U.S. GAAP: Overfunded (Fair value of plan assets > PBO) Report as a noncurrent asset. Underfunded: (Fair value of plan assets

Answer 7

Pension Plans

Question 8

Defined Benefit Obligation minus Fair value of Plan Assets equals Funded Status. Under IFRS: Overfunded (DBO Fair value of plan assets). Report as a defined benefit liability. IFRS does not specify whether the asset/liability should be reported as current or noncurrent.

Answer 8

Pension Plans

Question 9

U.S GAAP: Both are recognized as components of other comprehensive income in the period incurred, with the related tax effects. The 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 the other comprehensive income in the period incurred and are not reclassified (amortized) to the income statement.

Answer 9

Pension Plans

Question 10

Settlements: A transaction that a) is an irrevocable action, b) relieves that employer of primary responsibility for a pension benefit obligation, and c) eliminates significant risks related to the obligation and the assets used to effect he settlement. Curtailments: An event that reduces the expected years of future service of present employees or eliminates a significant number of employees the accrual of defined benefits for some or all of their future services.

Answer 10

Pension Plans

Question 11

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). Expenses and OCI components: Components of net periodic pension cost (pension expense) and accumulated OCI. Actuarial assumptions, Discount rate: The weighted-average discount rate.

Answer 11

Pension Plans

Question 12

Service cost, Interest cost, Return on plan assets, Amortization of prior service cost, Gains and losses, Expenses/Amortization of transition obligation.

Answer 12

Postretirement Benefits

Question 13

The funded status of postretirement benefit plan must be shown as a noncurrent asset (if overfunded) or a current liability, a noncurrent liability, 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.

Answer 13

Postretirement Benefits

Question 14

Description: A description of the plan. Recording 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% increase/decrease in assumed health care cost trend rates. Discount rate: The weighted-average discount rate.

Answer 14

Postretirement Benefits

Question 15

Employees’ services already rendered; Rights vest or accumulate; Payment of the compensation is probable; Amount can be reasonable estimated

Answer 15

Compensation and Benefits

Question 16

Permanent differences are transaction that affect either taxable income or financial income, but not both. Premium on key officer life insurance policy when entity is owner and beneficiary; Proceeds from key officer life insurance; Tax exempt interest on state and municipal bonds; Nondeductible portion of meals and entertainment; Fines and expenses in violation of law; Dividends received deduction.

Answer 16

Income Taxes

Question 17

Temporary differences are differences between taxable income and financial income that result in taxable or deductible amounts in future years and necessitate the recognition of deferred tax assets or liabilities. Depreciation (financial vs. MACRS); Gross profit on long-term construction contracts (percentage completion vs. completed contract); Estimated warranty costs; Litigation accrual; Gross profit on installment sales (accrual vs. cash); Bad debt expense using the allowance method vs. actual bad debt expense.

Answer 17

Income Taxes

Question 18

Anticipated future tax liabilities derived from situations in which future taxable income will be greater than future financial income due to temporary differences. A deferred tax liability is measured by applying the applicable enacted tax rate and provisions of the enacted tax law to temporary differences in the periods in which they are expected to reverse.

Answer 18

Income Taxes

Question 19

Anticipated future taxable income will be less than future financial income due to temporary differences. A deferred tax asset is recognized for all deductible temporary differences, operating losses, and tax credit carryforwards by applying the applicable enacted tax rate and provisions of the enacted tax law to temporary differences in the period in which they are expected to reverse. Deferred tax assets are also subject to recording a valuation allowance to reduce the asset to its net realizable value if it is more likely than not that it full value will not be recognized.

Answer 19

Income Taxes

Question 20

If it more likely than not (> 50%) that some portion or call of the deferred tax asset will not be realized, a valuation allowance needs to be created to recognize the reduction in the carrying amount of the deferred tax asset. Note: IFRS prohibits the use of a valuation allowance. Under IFRS, a DTA is recognized only when it is probable (more likely than not) that sufficient taxable profit will be available against which the temporary difference can be utilized.

Answer 20

Income Taxes

Question 21

U.S. GAAP: The enacted tax rate expected to apply to taxable items (temporary differences) in the periods the taxable item is expected to be paid (liability) or realized (asset). Do not allow the examiners to trick you into using the anticipated, proposed, or unsigned tax rate. IFRS: IFRS permits the use of enacted or substantively enacted tax rates.

Answer 21

Income Taxes

Question 22

U.S. GAAP: Classification between current and noncurrent is based on the classification of the related asset/liability. If there is no related asset or liability, then the timing of the reversal is used Current deferred tax assets and liabilities should be netted against each other. Noncurrent deferred tax assets and liabilities should be netted against each other as well. IFRS: Under IFRS, deferred tax assets and deferred tax liabilities are reported as noncurrent on the balance sheet. Deferred tax assets and deferred tax assets and deferred tax liabilities may be netted if the entity has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authorities.

Answer 22

Income Taxes