Pension Plan

Question 1

how to calculate Prior Service Cost Amortization

Answer 1

1- Find average remaining life of service for employees
ex: “A” will retire after three years
“B” and “C” will retire after five years
“D” will retire after seven years
Avg. remaining life of service = (.25 3) + (.255) + (.255) + (.257) = 5 years

2- Prior service amortization = Beg unrecognized Prior Service cost / 5

Question 2

footnote disclosure for pension plan inlcude

Answer 2

• Reconciliations of beginning and ending balances
• Funded Status
• Plan Assets
• Component of Net periodic pension benefit
• Benefit Payment and contributions
• impact on other comprehensive income
• Rates and Assumptions
• Employer and Related Party Transactions
• Amortization Methods
• Assumptions and commitments
• Termination benefits
• Disclosure Requirements for Non Public entities.

Question 3

Accumulated Benefits obligation

Answer 3

under U.S GAAP, the accumulated benefit obligation is the present value of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past compensation levels.

Question 4

The project Benefit obligation

Answer 4

The projected benefit obligation is the present value of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past and (an assumption about) future compensation levels. The only difference between the accumulated benefit obligation and the projected benefit obligation is the assumption of future compensation levels. The projected benefit obligation is used for most pension calculations.

Question 5

what goes to AOCI from a pension plan under US GAAP ?

Answer 5

Under U.S. GAAP, unrecognized prior service cost, unrecognized transition obligations and unrecognized net gains or losses must be reported in accumulated other comprehensive income, net of tax, until recognized as a component of net periodic pension cost through amortization. Unrecognized prior service cost, transition obligations and net losses all increase pension expense when recognized and are therefore recorded as a debit to accumulated OCI. Unrecognized transition assets and net gains decrease pension expense when recognized and are therefore recorded as a credit to accumulated OCI.