FAR Module 13D Flashcards
Under this pension plan the employer agrees to put a defined percentage of an employee’s pay into a pension plan. Consequently plan participants will receive at retirement whatever benefits the contributions can provide
Defined contribution plan
Under this pension plan the employer agrees to provide at retirement a defined or fixed amount
Defined benefit plan
This is what you owe your employees today if they all cashed in their pension. This calculation is based on future salary assumptions
The projected benefit obligation (PBO)
This is what you owe employees today if they cashed in your pension. In this calculation you base what you owe only on current salary levels
Accumulated benefit obligation
Where does the projected benefit obligation appear
This never appears on the financial statements, but you do show your calculations as a disclosure
T/F
The codification requires reporting the funding status of a pension plan. Overfunded and underfunded plans must be reported on the balance sheet as either assets or liabilities
TRUE
T/F
For ease of calculations you can net an overfunded and underfunded pension plan
FALSE
do not net these
If the plan is overfunded how is it recorded on the balance sheet
As a non-current prepaid asset (prepaid pension expense)
If the plan is underfunded how is it recorded on the balance sheet
Either as a current liability, a non-current liability, or both
What are the five factors involved in pension expense for a DBP
1) Service cost
2) interest component
3) actual return on plan assets
4) prior service cost
5) actuarial gains or losses
T/F
The service cost decreases pension expense
FALSE
Service cost increases it
How do you calculate service cost
Generally this will be given to you
T/F
The interest component increases pension expense
TRUE
How do you calculate the interest component
(Beginning projected benefit obligation)
X
(Discount/settlement rate)
In what situations will the actual return on plan assets increase or decrease pension expense
If the actual return is positive this decreases pension expense
if the actual return is negative this increases pension expense
How do you calculate the actual return on plan assets
Beginning fair market value of assets
+ employer contribution
- benefits paid
= ending balance of plan assets at fair value
+/- actual return on plan assets (plug to make equation balance)
Under what situation will you have an actuarial gain
If the actual return is greater than the expected return
Under what situation will you have an actuarial loss
The actual return is less than the expected return
What do you do with an actuarial gain or loss
Amortize it
This is highly complicated and we most likely won’t be asked to do it
What situations cause there to be a prior service cost
1) When the company did not have a pension plan at the beginning but then later got one
2) when a pre-existing pension plan is amended
How do you calculate the prior service cost for the period
Unrecognized prior service cost /
avg # of years before avg employee retires
T/F
prior service cost can increase or decrease pension expense, but generally will increase pension expense
TRUE
An actuarial gain or loss consists of what two factors
1) current period difference between the actual and expected return on plan assets
2) amortization of unrecognized net gain or loss from previous periods
T/F
An actuarial gain will increase pension expense while an actuarial loss will decrease pension expense
FALSE
an actuarial gain will decrease pension expense while an actuarial loss will increase pension expense
What is the formula for reconciling beginning PBO to ending PBO for a footnote disclosure
Beginning PBO \+ service cost \+ interest cost \+/- prior service cost \+/- actuarial gain or loss - benefits paid = Ending PBO
What is the formula for reconciling beginning PBO to ending PBO when an actuary is calculating the gain or loss
Beginning PBO \+ service cost \+ interest cost - benefits paid = Ending PBO
What is the journal entry to record pension expense
Debit pension expense credit pension (liability)
What is the journal entry to record pension funding
Debit pension (asset) credit cash
Under what situation will the pension (asset/liability) account have a credit balance versus a debit balance and what does this mean
Credit balance = if pension expense > pension funding. This is a liability
Debit balance = if pension funding > pension expense. This is an asset
Describe the T account for the accrued pension asset/liability account
Beginning balance will be a debit if it is an asset (on the left) and a credit if it is a liability (on the right).
The balance in the pension asset/liability account for this period will be added on the appropriate side
This will give you the ending balance
What is the journal entry to increase the pension liability because of an actuary (Who calculated an actuarial loss)?
in the event of an actuarial gain this entry will be what?
Debit other comprehensive income gain/loss
credit accrued pension liability
Debit prepaid pension expense
Credit OCI
When increasing the pension liability because of an actuary (actuarial loss), what is the related journal entry to record it net of tax
in the situation of an actuarial gain how will this be different?
Debit deferred tax asset
credit OCI - deferred tax asset
Debit OCI - deferred tax liability
Credit deferred tax liability
T/F
service costs include assumptions concerning projected changes in future compensation when the pension benefit formula is based on future compensation levels
TRUE
What does OPEB stand for
Post retirement benefits other than pensions
Under US GAAP the “benefits years of service” method is used to calculate the projected benefit obligation.
Under IFRS what method is used to calculate the present value of the defined-benefit obligation
The projected unit credit method
What term does IFRS use in place of accumulated benefit obligation
Accrued benefit obligation
The assumed discount/settlement rate should reflect what
The rate at which the pension benefits could be effectively settled. This is why the discount rate is referred to as the settlement rate
Which of the following disclosures is not required for companies with the DBP plan
1) A description of the plan
2) the amount of pension expense by component 3) the weighted average discount rate
4) the estimates of future contributions for the next five years
4) - it is only required for the next year
T/F
actual return on plan assets and amortization of unrecognized prior service cost are components included in the calculation of net pension cost
TRUE
Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents what
The increase in the projected benefit obligation due to the passage of time
The company that maintains a DBP for its employees reports an unfunded pension liability. this cost represents what
The amount that The cumulative net periodic cost accrued exceeds contributions to the plan
How do you calculate the pension liability
This will be the excess of unfunded PBO over plan assets
An employers obligation for post retirement benefits that are expected to be provided to or for an employee must be fully accrued by what date
The date the employee is fully eligible for benefits
