Pensions Flashcards
Pension Liability = ?
PBO - FV of plan assets
The funded status of a defined benefit pension plan appears in which statement?
The balance sheet
Plan investments should be reported in a defined benefit plan’s financial statements at actuarial present value. TF
False. At fair value.
Pension Asset = ?
FV of plan assets - PBO
The PBO is increased by funding contributions and decreased by pension expenses. TF
True, these actions affect the PBO account
What does a pension liability represent?
An unfunded projected benefit obligation
What are the 5 components of pension expense?
- Service Cost
- Interest Cost
- Expected return on plan assets
- Amortization of prior service cost
- Effect of gain or loss
REDO How is pension service cost calculated?
(PV of the annuity for x amount of years (The retirement)) x PV of
What is pension interest cost and how is it calculated?
The growth in PBO for the period. Beg PBO x Current Mkt Interest Rate
What is “expected return on plant assets” and how is it calculated?
The expected growth in the pension fund for the year. Beg FV of plan assets x Expected Rate of Return on plan assets
What is the formula for pension expense?
Service Cost + Interest Cost - Expected Return + Am. of a A. Loss + A of Unrec NO = Pension Expense
What would be the JE for an increase in service cost for a service provided in the past?
dr. Prior Service Cost - OCI
cr. Pension Liability
What two amortization methods are allowed by GAAP for PSC into pension expense?
Straight Line and Service Method
An estimated increase in employee turnover would cause PBO to decrease. TF
True. Because estimated pension benefits are reduced.
An increase in the FV of plan assets would cause an increase in the pension liability. TF
True. Because you are subtracting even more from the PBO. PBO - FV of plan assets = PL
When an actuarial gain is recognized, pension liability is credited. TF
False. dr. Pension Liability cr. Pension Gain - OCI
PBOs are subject to delayed recognition. TF
False. Changes in PBOs are recognized immediately.
A journal entry to recognize an amortization gain causes what effect on pension liability?
No effect on pension liability
A journal entry to recognize an amortization gain causes what effect on pension expense?
Decreases pension liability
Amortization of PSC is subtracted from pension expense when trying to determine pension liability?
True
The estimates of future contributions are a required disclosure of defined pension benefit plans. TF
False
PBO stands for
Pension Benefit Obligation
PBO = ? for IFRS?
DBO (Defined Benefit Obligation)
What is the formula for DBL?
DBO - FV of plan assets = Funded Status, FS +/- Unrecognized Net Pension GL - Unrecognized PSC = DBL
Under IFRS the vested portion of PSC, at PV, is recognized immediately in pension expense. TF
True
Under IFRS the un-vested portion of PSC, at PV, is recognized immediately in pension expense. TF
False, it is gradually amortized to pension expense over the appropriate period.
Under IFRS, firms have the option to recognize PSC in OCI or earnings. TF
False. Vested portion is recognized immediately as OCI and the unvested portion is amortized.
Post-employment Benefit Obligation acctg is what type of acctg?
Accrual
The primary measure of post retirement benefit obligation is…
Accumulated Postretirement Benefit Obligation (APBO)
What is EPBO?
Expected Post-retirement Benefit Obligation. The PV of benefits expected to be paid based on the level of coverage the employees are expected to retain.
Per capita claims costs are unique to post post retirement healthcare benefits. TF
True
Components of changes in net assets available for benefits of a defined benefit pension plan trust, include: the net change in the ___ of each significant class of investments, contributions, and benefits paid. TF
FV
Employer contributions are a part of pension expense. TF
False
Amortization of unrecognized PSC is added to the pension expense formula. TF
True, it is part of the expense
Things that are traditional expenses are ____ when computing pension expense, and items that are traditional revenues or gains are ____ to pension expense.
Added, subtracted
What is the general formula for pension expense?
Service Cost \+ Interest Cost \+ Actual return on plan assets \+ Amortization of unrecognized PSC = Pension Expense
IFRS requires the use of what method to calculate the PV of the defined PBO?
projected unit credit method
