Retiree 7, FAS106 ACCOUNTING

Question 1

FAS 106 Effect on income statement

Aka FAS 106 Attribution Method

Answer 1

1. Changed from pay-as-you-go to full accrual accounting
2. Expected future benefit accrued over working lifetime
3. EPBO=Actuarial PV of post retirement benefit for that individual
4. Probabilities of terminations, death, retirement, and anticipated increase in plan costs taken into consideration in EPBO
5. Amount attributable before measurement date is APBO and current year is the Service cost
6. By full eligibility date, APBO = EPBO

APBO= accumulated post retirement benefit obligation
EPBO=expected post retirement benefit obligation

Question 2

Components of net periodic post-retirement benefit cost

• cost of post retirement benefits attributed to current period

Answer 2

1. Service cost - portion of EPBO attributed to service during current period
2. Interest cost on APBO, service cost, and on benefit payments. Use of pre-tax rate.
3. Expected return on plan assets
4. Net transition obligation = APBO - plan assets when FAS106 first adopted. Amortize to expected retirement
5. Net amortization and deferral
   
   5. 1 gains and losses: change in APBO or assets from experience different from assumptions or from a change in assumptions. Amortize to expected retirement
   6. 2 prior service cost (plan amendment) = the change in the APBO, amortized to the full eligibility date