Pensions & Taxes Flashcards
What is the difference between contributory & noncontributory pension plans?
Contributory = employees required to contribute
Noncontributory = Only employer can contribute
What is the difference between overfunded vs. underfunded pension plans?
Overfunded = more assets than liabilities
Underfunded = more liabilities than assets
What are the two types of Non-GAAP pension plans?
Pay as you go & terminal funding
What are the two types of GAAP pension plans?
Which plan is used most often for CPA?
Defined contribution plan & defined benefit plan
Defined Benefit Plan is used more
What is the difference between accumulated benefit obligation (ABO) & projected benefit obligation (PBO)?
Which one is used more more for the CPA?
ABO = current salaries only
PBO = future salaries
PBO is used more
Formula for Ending PBO:
Beg. PBO \+ service cost \+ interest cost \+ prior service cost \+ actual losses - actual gains -benefits paid = Ending PBO
Formula for Ending FV of Plan Assets:
Beg. FV of plan assets \+ contributions \+actual return on plan assets - benefits paid = Ending FV of plan assets
Formula for Net Period Pension Cost:
“SIR AGE”
\+ service cost \+ interest cost - return of plan assets \+ amortization of prior service cost - gains or + losses \+ amortization of existing net obligation or - net asset
What is the JE on the I/S for recording the net periodic pension cost?
DB: Net periodic pension cost
CR: pension benefit liability
CR: OCI
Formula for Service cost:
Service cost will be provided by actuary.
Formula for Interest cost:
Beg. PBO * discount rate
Formulas for Return on Plan Assets:
Actual Return: Beg. FV of plan assets \+ contributions \+ actual returns (squeeze) - benefits paid = ending FV
Expected Return:
Beg. FV of plan assets * expected rate of return
Formula for Amortization of prior service cost:
What is the difference using this with IFRS?
Beg. unrecognized prior service cost / avg. remaining service life
IFRS - the entire service cost is booked into IS and not unrecognized to OCI
What are the two ways to determine a gain or loss?
1) Difference between expected & actual return on plan assets
2) Actual gains & losses in period
Formula for amortizing gains/losses on IS:
Corridor approach:
Total gain/loss - greater of 10% of PBO or 10% of FV plan assets = Excess / avg. remaining service life = Amortization of gain/loss
Formula for amortization of existing net obligation or net assets:
PBO - FV plan assets = initial unfunded obligation / 15 years OR avg. employee job life = amortization
On the B/S, what is the JE for a pension plan contribution?
DB: Pension benefit assets/liability
CR: Cash
Formula for funded status of pension plan:
FV of plan assets
- PBO
= Funded status
How are overfunded and underfunded pensions reported in IS?
Overfunded = noncurrent asset
Underfunded = noncurrent liability & curent liability if expected future benefits exceed the FV of plan assets
Formula for ending funding status:
Beg. funding status \+ contributions - service cost - interest cost \+ expected return on plan assets - prior service cost \+ net gains - net losses = ending funded status
Which of the pension costs must be recorded within the B/S first before moving to the I/S?
“AGE”
Prior pension, gains/losses, net obligation/net assets
In the B/S, what is the JE for prior service cost & losses?
In the B/S, what is the JE for this deferred tax asset?
DB: OCI
CR: Pension benefit asset/liability
DB: Deferred tax asset
CR: Deferred tax benefit - OCI
In the I/S, what is the JE when amortizing out of the B/S the prior service cost & losses?
What is the deferred tax JE?
DB: net periodic pension cost
CR: OCI
DB: Deferred tax benefit - OCI
CR: Deferred tax benefit - I/S
In the B/S, what is the JE for gains?
In the B/S, what is the JE for this deferred tax liability?
DB: Pension benefit asset/liability
CR: OCI
DB: Deferred tax expense - OCI
CR: Deferred tax liability
