F6- Post-retirement Benefits

Question 1

What are the components of net periodic postretirement benefit cost (postretirement expense) under U.S. GAAP?

F6-12

Answer 1

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

Question 2

How do we account for postretirement benefits on the balance sheet under U.S. GAAP?

F6-13

Answer 2

• The funded status of the postretirement benefit plan must be shown as a
  
  • non -current 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 accumulated comprehensive income until amortized to net periodic postretirement benefit cost.

Question 3

What are some of the required disclosures for postretirement benefit plans?

Hint: I dread having to disclose this stuff!

F6-14

Answer 3

Description: A description of the plan.

Reconciling 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.

Question 4

**Compensation and Benefits **

List the four criteria for recognizing postemployment benefits and compensation for future absences.

F6-15

Answer 4

• Employees’ services already rendered.
• Rights vest or accumulate.
• Payment of the compensation is probable.
• Amount can be reasonably estimated.