Deferred compensation, pension plans

Question 1

What is APBO?

Answer 1

The PV of all unpaid future retirement costs at the balance sheet date for 1) service rendered to that B/S date, 2) at current salary level

Question 2

If there are two DBOs, how to record the PA or PL?

Separately or together?

Answer 2

Separately

Question 3

What are included in PBO disclosure?

Answer 3

A) description of the plan

B amt of the

Question 4

The increase of PSC brings what effects?

Answer 4

Increase PBO

Record as dr. OCI and cr. pension liability

Question 5

1. Actg for pension G/L

Under IFRS:

Answer 5

IFRS: G/L recognize immediately in DBO and OCI, no amortization, so no effect in NI

JE Record as: dr. Pension G/L - OCI. Cr. DBL

GAAP: G/L is amortized and increase or decrease pension expense

Question 6

Actg for PSC

IFRS : the PV of PSC is expensed immediately in pension for vested amount, unvested treat as unrecognized PSC and amortized over the SL on the periods of vesting

Answer 6

Ex. JE for PSC 20000, 16000 were vested
Pension expense 16000
Unrecognized PSC 4000
DBL. 20000

JE for amortize the unvested portion:
Pension expense 4000
Unrecognized PSC. 4000

Only decrease unrecognized. PSC, no effect in AOCI

GAAP for PSC amortization
Use SL: average of remaining service periods of employees
or service method: amortize the same amount per service year per person (more people working, more amortization cost)

When recognize PSC, record as
Dr. PSC-OCI Cr. pension liability

When amortized PSC
Dr. Pension expense Cr. PSC -OCI

Question 7

What are the events resulted in PBO gain or loss? 2

Answer 7

1) experience not equal to prior estimates

2) change in estimates of future events

Question 8

What are the five components in Pension expense?

Answer 8

1) service cost
2) intent cost
3) expected returns because actual unknown
4 & 5 are delayed cognitions
4) amortization of PSC
5) amortization of PBO net G/L

Question 9

What are in DBL?

Answer 9

DBO
- plan asset at FV
= unfunded status
\+ unrecognized net pension gain*
- unrecognized net pension loss*
- unrecognized PSC**
= DBL

Question 10

How is IFRS and GAAP classify DBO and PA?

Answer 10

IFRS: no specific guidance

GAAP: liability can be CL or LL, but PA is always Noncurrent

Question 11

Non-retirement post-employment benefits

Criterion for Accrual liability under what situations?

Answer 11

One: all criteria are met

1) employee service has rendered
2) obligation relates to rights that vest or accumulate
3) payment for compensation is probable
4) payment can be reasonably estimated

Two: when above criteria didn’t meet, apply contingency

Question 12

JE for post-employment compensation

Answer 12

JE:
when paid
Dr. Liabilities for post employment compensation
Cr. cash

When accrued:
Dr. Post employment compensation
Cr. liability for post-employment benefit

Question 13

What type of benefits are covered in post employment plan?

What kind of actg is used?

Answer 13

Severance pay benefits
Salary-continuation benefits
Job training benefits

Accrual actg

Question 14

Retirement benefits

What are included in retirement benefits?

Answer 14

All types of cares that promote employees well beings

Question 15

What is the primary measurement of post-retirement benefit obligation ?

Is it reported and computed the same way as PBO in pension plan?

Answer 15

Accumulated post-retirement benefit obligations (APBO)

It reported the same way as PBO, but computed differently
Computation: 1) compute expected PBO (PV of benefits to be paid)
2) APBO is computed by fraction of (yrs employee worked/yrs benefit to be fully vested ) * EPBO

Question 16

What is the difference of PBO to APBO?

Answer 16

APBO can have 6 items, first five are the same as PBO, the sixth one is optional by firm that called amortization of transition obligation. ( from using cash basis back then, now after change to accrual, need to be recognized, firms can recognize all or amortize over time, similar to amortization of PSC)

Question 17

If employees’ benefits are fully vested, do they still receive mor benefits after the vested period?

Answer 17

No more accrual benefits, it only means that they can receive the benefits during their retirement, not all at once.

EPBO grows each year along with interest

Interest cost is rate times APBO

Question 18

What is the post-retirement benefit expense JE look like?

Answer 18

When accrue expense:
Dr. Post-employment benefit expense
Cr. post-employment benefit liability (SC+interest cost- expected returns)
Cr. PSC amortization
Cr. post-retirement benefit G/L amortization

When paid : liability decrease, cash decrease

Question 19

How to calculate ending post-employment benefit liability?

Where to record APBO gain?

Answer 19

Beg APBO
\+ SC
\+ interest cost
-benefits paid 
-APBO gain *. = beg gain + (actual return -expected return)
= ending APBO - ending plan asset = PBL