FAR 37 Flashcards
What is Prior service cost and how is it calculated
Prior service cost is the increase (+) or decrease (-) in PBO from initiation of or amendment to a plan.
How do you account for Prior service costs that result from an amendment to the plan
You do it in the year of the amendment and years going forward
- They are treated as increases in the PBO and amortized over a period based on the expected service lives of employees covered by the plan
What must you disclose in your notes about PBO
must have a reconciliation of the funded status of its pension plan in the notes
- must also disclose the accrued or prepaid pension cost reported on the balance sheet
By what date must you fully accrued an obligation for post retirement health benefits
Must be fully accrued by the detach employee is fully eligible for benefits
What are you required to disclose if you offer post requirement health benefits to employees
- the assumed healthcare cost trend rate to measure expected costs of benefits and the accumulated post-retirement obligation
- The accumulated post retirement benefit obligation
- a brief plan description
- the status of over or under funded plans and
- The effects an accumulated post retirement benefit obligation, service cost, and interest cost of a 1% increase or decrease of the trend rates for health care costs
What is the normal balance of AOCI
credit +
debit -
What is A VBO, ABO, an dPBO
VBO - the amount they are entitled to when they leave because its vested - smallest pension liability
ABO - this is the value employee have earned to date - include some not yet vested and assumed employees will stay till they retire
PBO - this is the value of benefits employees have earned to date, includes both vested and unvested. Similar to ABO except that it takes into account future pay increases.
What if a company has multiple plans and some are over funded and some are under funded - B/S
the company will report pension asset when plan asset exceeds PBO for overfunded plans
The company will also reports a pension liability separately for any underfunded plans
what is a service cost
This is the increase in PBO from services performed by employees during the year
It is the benefits earned
How do you calculate interest cost and what is it
Beginning PBO * Interest rate - this is the interest cost that is added to pension
expense
Interest cost is the increase of PBO die to the passage of time
How do you calculate Expected return on plan asset
this is beg plan asset * expected rate of return.
This amount is then subtracted from the pension expense
technically it is ‘Not” part of the pension expense calculation
when are there changes to AOCI - PBO
This happens when there are excess adjustment of the PBO and plan asset at years end
What are the components of a pension plan Assets
ts
beginning plan assets \+ contributions \+ actual returns -benefits paid = ending balance
Plan assets can also equal - a defined benefit plan trust actual returns are also calculated by the net change in fair value of each significant class of investments
What is the increase in passage of time in plan assets
This is calculated with the return on plan assets which reduce pension expense
What is the difference between the expected and actual returns on plan assets
This amount is accumulated and amortized as as a net gain or loss when it exceeds certain limits
How do you calculate the service cost
The service cost is the increase to pension expense based on the increase in services performed by employees
It is calculated as the increase in the PBO after eliminating the effects of interest or distributions from the plan
What are you required to disclose in the notes about your defined benefit pension plan
- the components of period pension costs
- the amount of un recognized prior service cost
- a detailed description of the plan including employee groups covered
How should plan investments be reported in a defined benefit plan’s financial statements
At fair value
What system does IFRS require to be used to calculate PBO and service cost
projected-unit-credit method
what do you do with amortization of unrecognized net obligation
actuarial gain and losses are accumulated separately but are not included when incurred
When the net cumulative amount exceed a certain limit - a portion is amortized
a loss would increase pension expense
a gain would decrease pension expense
What is the definition of a smaller reporting co
public equity float = the amount of equity available to investors for trading. this amount must be less than 75M to qualify as a small reporting co.
When you first have prior service cost what happened
It is first recognized in OCI in its entirety
dr. OCI 100
cr PBO 100
This is a loss to obi because it has a normal credit balance
each year you amortize the amount to pension cost expense
dr pension cost 10
cr OCI 10
What are included in withholdings vs. payroll tax expense
payroll tax expense - these are the taxes you will pay based on payroll
withholding are ONLY the taxes paid by the employees that you have to submit to the IRS
