Pension Plans

Question 1

What are the accounting problems that arise from defined benefit plans?

Answer 1

Use of estimates and assumptions that affect the timing and measurement of pension costs, gains and losses from investment of plan assets, and liabilities

Question 2

What does the term “funding” refer to?

Answer 2

Sponsor company making contributions to the pension plan

Question 3

When is a plan funded?

Answer 3

When employer makes cash contributions to the plan.

Question 4

Does the amount funded have to equal pension expense?

Answer 4

No

Question 5

What does the Defined Contribution Plan specify?

Answer 5

Periodic amount of contributions to the plan

Question 6

What is an example of a defined contribution plan?

Answer 6

401K

Question 7

What does the Defined Benefit Plan specify?

Answer 7

Benefits to be paid to employees at retirement

Question 8

How are contributions computed in a Defined Benefit Plan?

Answer 8

Using actuarial assumptions of future benefit payments

Question 9

What is the Accumulated Benefit Obligation?

Answer 9

Actuarial present value of benefits attributed by a formula based on current and past compensation levels

Question 10

What is the Projected Benefit Obligation?

Answer 10

Actuarial present value of all benefits attributed by the plan’s benefit formula to employee service rendered prior to that date

Question 11

What salary is used for ABO? PBO?

Answer 11

Current and future

Question 12

Formula for PBO?

Answer 12

Beg. PBO + Service Cost + Interest Cost + Prior service cost from current period plan amendments + Actuarial losses incurred - Actuarial gains incurred - Benefits paid to retirees = End PBO

Question 13

Formula to calculate Ending fair value of plan assets?

Answer 13

Beg. Fair value of plan assets + Contributions + Actual return on plan assets - Benefits paid to retirees = End fair value of plan assets

Question 14

Formula for Net pension expense?

Answer 14

Current service cost + Interest Cost - Returen on Plan Assets + Amortization of Prior Service Cost - Gains + Losses + Amortization of Existing Net Obligation or Net Asset = Net Periodic Pension Cost

Question 15

Where is unamortizaed Prior service cost, existing net obligation or net asset held?

Answer 15

Accumulated Other Comprehensive Income

Question 16

Is there a formula under IFRS for Net Periodic Pension Cost?

Answer 16

No all components are reported separately

Question 17

What is Current Service Cost?

Answer 17

Present value of all benefits earned in the current period

Question 18

Formula for Interest cost?

Answer 18

Beginning of period PBO x Discount rate = Interest cost

Question 19

Formula for Expected Return on Plan Assets?

Answer 19

Beginning FV of plan assets x Expected rate of return on plan assets = Expected Return on Plan Assets

Question 20

Where must the difference between actual and expected return be recognized?

Answer 20

Other Comprehensive Income

Question 21

Formula for Amortization of Unrecognized Prior Service Cost?

Answer 21

Beginning unrecognized prior service cost / Average remaining service life

Question 22

Under IFRS, Is past service cost booked to Other Comprehensive Income?

Answer 22

No

Question 23

What are the 2 sources for Gains and Losses?

Answer 23

Difference between the expected and actual return on plan assets and changes in actuarial assumptions

Question 24

In the corridor approach, an entity’s net unrecognized gain or loss can be amortized if the amount exceeds 10% of the greater of the beginning of the year balances of

Answer 24

Market related value of plan assets or projected benefit obligation

Question 25

What is the minimum amortization formula of existing net obligation or net asset at implementation?

Answer 25

(PBO - FV plan assets) / 15 years or average employee job life (greater)

Question 26

JE for Pension Plan Contribution?

Answer 26

Dr. Pension benefit asset/liability Cr. Cash

Question 27

Formula for Funded Status?

Answer 27

FV of plan assets - PBO

Question 28

Formula for Ending funded status?

Answer 28

Beg. Funded Status + Contributions - Service Costs - Interest Cost + Expected return on plan assets - Prior service cost incurred + Net gains incurred - Net losses = End. Funded Status

Question 29

JE for Prior service cost and pension losses?

Answer 29

Dr. Other Comprehensive Income Cr. Pension benefit asset/liability

Question 30

JE to record Deferred tax asset?

Answer 30

Dr. Deferred tax asset Cr. Deferred tax benefit - OCI

Question 31

JE for Recognition of Pension Gains?

Answer 31

Dr. Pension benefit asset/liability Cr. Other Comprehensive Income

Question 32

JE for recording deferred tax liability?

Answer 32

Dr. Deferred tax expense - OCI Cr. Deferred tax liability

Question 33

JE for amortization to pension expense?

Answer 33

Dr. Other comprehensive income Cr. Net periodic pension cost

Question 34

Je for amortization of deferred tax liability?

Answer 34

Dr. Deferred tax expense - Income statement Cr. Deferred tax expense - OCI

Question 35

What are events that reduce the expected remaining years of service for present employees?

Answer 35

Curtailments

Question 36

When does termination benefits arise?

Answer 36

When employees are paid to terminate their rights to future pension payments