Pension Plans Flashcards
What are the accounting problems that arise from defined benefit plans?
Use of estimates and assumptions that affect the timing and measurement of pension costs, gains and losses from investment of plan assets, and liabilities
What does the term “funding” refer to?
Sponsor company making contributions to the pension plan
When is a plan funded?
When employer makes cash contributions to the plan.
Does the amount funded have to equal pension expense?
No
What does the Defined Contribution Plan specify?
Periodic amount of contributions to the plan
What is an example of a defined contribution plan?
401K
What does the Defined Benefit Plan specify?
Benefits to be paid to employees at retirement
How are contributions computed in a Defined Benefit Plan?
Using actuarial assumptions of future benefit payments
What is the Accumulated Benefit Obligation?
Actuarial present value of benefits attributed by a formula based on current and past compensation levels
What is the Projected Benefit Obligation?
Actuarial present value of all benefits attributed by the plan’s benefit formula to employee service rendered prior to that date
What salary is used for ABO? PBO?
Current and future
Formula for PBO?
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
Formula to calculate Ending fair value of plan assets?
Beg. Fair value of plan assets + Contributions + Actual return on plan assets - Benefits paid to retirees = End fair value of plan assets
Formula for Net pension expense?
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
Where is unamortizaed Prior service cost, existing net obligation or net asset held?
Accumulated Other Comprehensive Income
Is there a formula under IFRS for Net Periodic Pension Cost?
No all components are reported separately
What is Current Service Cost?
Present value of all benefits earned in the current period
Formula for Interest cost?
Beginning of period PBO x Discount rate = Interest cost
Formula for Expected Return on Plan Assets?
Beginning FV of plan assets x Expected rate of return on plan assets = Expected Return on Plan Assets
Where must the difference between actual and expected return be recognized?
Other Comprehensive Income
Formula for Amortization of Unrecognized Prior Service Cost?
Beginning unrecognized prior service cost / Average remaining service life
Under IFRS, Is past service cost booked to Other Comprehensive Income?
No
What are the 2 sources for Gains and Losses?
Difference between the expected and actual return on plan assets and changes in actuarial assumptions
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
Market related value of plan assets or projected benefit obligation
What is the minimum amortization formula of existing net obligation or net asset at implementation?
(PBO - FV plan assets) / 15 years or average employee job life (greater)
JE for Pension Plan Contribution?
Dr. Pension benefit asset/liability Cr. Cash
Formula for Funded Status?
FV of plan assets - PBO
Formula for Ending funded status?
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
JE for Prior service cost and pension losses?
Dr. Other Comprehensive Income Cr. Pension benefit asset/liability
JE to record Deferred tax asset?
Dr. Deferred tax asset Cr. Deferred tax benefit - OCI
JE for Recognition of Pension Gains?
Dr. Pension benefit asset/liability Cr. Other Comprehensive Income
JE for recording deferred tax liability?
Dr. Deferred tax expense - OCI Cr. Deferred tax liability
JE for amortization to pension expense?
Dr. Other comprehensive income Cr. Net periodic pension cost
Je for amortization of deferred tax liability?
Dr. Deferred tax expense - Income statement Cr. Deferred tax expense - OCI
What are events that reduce the expected remaining years of service for present employees?
Curtailments
When does termination benefits arise?
When employees are paid to terminate their rights to future pension payments
