FAR 37

Question 1

What is Prior service cost and how is it calculated

Answer 1

Prior service cost is the increase (+) or decrease (-) in PBO from initiation of or amendment to a plan.

Question 2

How do you account for Prior service costs that result from an amendment to the plan

Answer 2

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

Question 3

What must you disclose in your notes about PBO

Answer 3

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

Question 4

By what date must you fully accrued an obligation for post retirement health benefits

Answer 4

Must be fully accrued by the detach employee is fully eligible for benefits

Question 5

What are you required to disclose if you offer post requirement health benefits to employees

Answer 5

• 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

Question 6

What is the normal balance of AOCI

Answer 6

credit +

debit -

Question 7

What is A VBO, ABO, an dPBO

Answer 7

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.

Question 8

What if a company has multiple plans and some are over funded and some are under funded - B/S

Answer 8

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

Question 9

what is a service cost

Answer 9

This is the increase in PBO from services performed by employees during the year

It is the benefits earned

Question 10

How do you calculate interest cost and what is it

Answer 10

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

Question 11

How do you calculate Expected return on plan asset

Answer 11

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

Question 12

when are there changes to AOCI - PBO

Answer 12

This happens when there are excess adjustment of the PBO and plan asset at years end

Question 13

What are the components of a pension plan Assets

ts

Answer 13

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

Question 14

What is the increase in passage of time in plan assets

Answer 14

This is calculated with the return on plan assets which reduce pension expense

Question 15

What is the difference between the expected and actual returns on plan assets

Answer 15

This amount is accumulated and amortized as as a net gain or loss when it exceeds certain limits

Question 16

How do you calculate the service cost

Answer 16

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

Question 17

What are you required to disclose in the notes about your defined benefit pension plan

Answer 17

• the components of period pension costs
• the amount of un recognized prior service cost
• a detailed description of the plan including employee groups covered

Question 18

How should plan investments be reported in a defined benefit plan’s financial statements

Answer 18

At fair value

Question 19

What system does IFRS require to be used to calculate PBO and service cost

Answer 19

projected-unit-credit method

Question 20

what do you do with amortization of unrecognized net obligation

Answer 20

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

Question 21

What is the definition of a smaller reporting co

Answer 21

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.

Question 22

When you first have prior service cost what happened

Answer 22

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

Question 23

What are included in withholdings vs. payroll tax expense

Answer 23

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