FAR 6 Flashcards
Define two types of pension plans.
Defined Contribution Plan- Amount of contribution is specified.
Defined Benefit Plan- Amount of benefit to be received is specified or estimated.
What is the difference between projected benefit obligation (PBO) and accumulated benefit obligation (ABO)?
What is the name for the pension plan liability under IFRS?
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 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.
What is the formula used to calculate the ending projected benefit obligation (PBO)?
Beginning PBO \+Service Cost \+Interest Cost \+Prior service costs from current period amendments \+Actuarial Losses incurred in the period -Actuarial Gains incurred during the period -Benefits paid to retirees. = Ending PBO
What is the formula to calculate the ending fair value of plan assets?
Beginning Fair Value of plan assets \+Contributions \+Actual Return on assets -Benefit payment =Ending Fair Value of plan assets
Name the components of net periodic pension costs (net pension expense) under US GAAP?
SIR AGE
Service Cost Interest Cost Return on Plan Assets Amortization of prior service costs Gains and Losses Amortization of Existing unrecognized net obligation or unrecognized net asset at implementation.
How are unrecognized gains and loses amoritized to pension expense under US GAAP?
Using the corridor approach. The formula is:
Unrecognized gain or loss
=Excess
/Average remaining service years
=Amoritization of unrecognized gain or loss
How is the funded status calculated and reported under US GAAP?
Companies with defined benefit pension plans must report funded status on the balance sheet.
Fair Value of Plan Assets
=Funded Status
Under US GAAP:
Overfunded:(Fair Value of plan assets>PBO)
Report as noncurrent assets
Underfunded: (Fair Value of plan assets<PBO)
Report as a current liability (to the extent that benefits payable in the next 12 months exceed the fair value of the plan assets), a noncurrent liability or both.
How is the funded status caluculated and reported under IFRS?
Defined Benefit Obligation
=Funded Status
Under IFRS:
Overfunded: (DBOFair Value of Plan Assets)
Report as a net defined benefit liability
IFRS does not specify whether the asset/liability should be reported as current or noncurrent.
How are changes in the funded status from pension gains and losses and prior service costs reported on the financial statements uner US GAAP and IFRS?
US GAAP: Both or recognized as components of other comprehensive income in the period incurred, with the related tax effects. Then reclassified to net periodic pension cost as amortized.
IFRS: Prior service cost is reported as a component of service cost on the income statement the period incurred. Pension gains and losses are reported in the other comprehensive income section in the period incurred and are not reclassified (amortized) to the income statement.
define pension settlements and pension curtailments.
settlements- a transaction that (a) is an irrevocable action, (b) relives the employer of primary responsibility for a pension benefit obligation, and (c) eliminates significant risks related ti the obligation and the assets used to effect the settlement.
curtailments- an event that significantly reduces the expected years of future service of present employees or eliminates for a significant number of employees the accrual of defined benefits for some or all of their future services.
