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Flashcards in Pensions and Income Tax Accounting Deck (40)
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1
Q

What is the approach under GAAP for income tax expense?

A

Asset and Liability approach

2
Q

How to net current and non-current assets and liabilities?

A

Current with currents

non-currents with non-currents

3
Q

Difference between “income tax expense” and “income tax liability”?

A

Current Income tax expense = taxable income * tax rate

Income tax liability = expense less any tax payments made.. except you less the payments made at the END after calculating the taxable income at TR rate

4
Q

How to calc. DEFERRED tax expense?

A

Equal to current period TEMPORARY differences times FUTURE TR

5
Q

Deferred Tax Asset?

Deferred Tax Liability?

A

Deferred Tax ASSET: Warranty costs for Future Years (to be calced at their tax rate in that year)

Deferred Tax Liability: EG. Depreciation, prepaid insurance, rent receivable

Deferred Tax EXPENSE = def. Tax Liabilities NET OF def. tax assets.

6
Q

How to calc for temporary difference?

A

Subtract permanent difference to arrive at temporary difference

EG equity in investee - dividends in investee (adj. for DRD deduction)

7
Q

Example Tax J/E

A

Tax exp - current XX
Tax exp - deffered XX
Tax Liab. - curr. XX
Tax Liab. - Deff. XX

8
Q

Also deferred tax asset formula:

A

Net Differences related to balance sheet accounts X future enacted tax rate

9
Q

Rule about income recognized on the financial statement before being reported as Taxable Income

A

The rule about income being recognized on the financial statement BEFOREbeing reported as Taxable Income, is that a deferred tax liability should be reported.

10
Q

What does a “deferred tax asset” represent?

A

Future Tax Savings

profit in year of, deductible down the line

11
Q

What is a Pension Plan Agreement?

A

Agreement in which the employer provides employees with defined or estimated retirement benefits in exchange for current or past services.

They are a form of DEFERRED COMPENSATION paid to retired employees, usually on a periodic basis.

12
Q

Defined benefit plan

A

Benefits the employee receives are determined by a formula, and it is the sponsor company’s responsibility to ensure that contributions to the plan are sufficient to pay benefits as they become due.

13
Q

Defined contribution plan

A

Empl. retirement benefits based on the amount IN the plan. (EASIER to account for)

14
Q

Pension Plan:

Prior service cost amortization under US GAAP?

A

Under GAAP, amortization of unrecognized prior service cost, means you amortize the total Credit to employees for services, over average “Remainder of years left”.

EG

100,000 for services rendered prior to plans adaptation
/ 5 (avg. of 3+5+7)

15
Q

Components of Pension Period Costs: SIRAGE

the income statement accounting for pension plans

A

S- Service Cost component (at present val - PBO)

I- Interest Cost component
(also called Discount Rate; multiply times beg. of period PBO)

R- Returns expected on plant assets for the period (either Actual or expected)

A- Amortization of Prior service cost component (unamortized portion goes to AOCI)
(unrecognized net losses less PBO x 10%)… then divide by remaining service life

G- Gain/Loss component
(unamortized portion goes to AOCI)

E- Transition asset or obligation component…
(unamortized portion goes to AOCI)

Plus the amnt of any gain/loss due to a settlement or curtailment.

16
Q

Pension Plans:

What is accumulated benefit obligation?

Projected benefit obligation? (PBO)

A

Acc ben obligation: PRESENT value of future retirement payments, attributed to the pension benefit formula to empl. services rendered prior to a date, based on current and past compensation levels

Proj. Ben. Obligations: like accumulated benefit obligation, but based on PROJECTED (or future) Compensation levels, instead of past/present

EG: beg bal, + 10% interest + Current year service costs (LESS) pension benefits paid during the year

17
Q

What makes up a gain in a pension plan?

A

(Actual Return - Expected Return) x Net of Tax (e.g. 1-.3)

18
Q

How to use the BASE formula to calculate “actual return on plant assets”

A
B - beg plan assets (+)
A - Contributions
   - Actual Return (SQUEEZED)
S - (Less) the benefits paid
E - Ending plan assets (e.g. given at 525000)
19
Q

How to know if a pension plan is underfunded or overfunded?

“Funded Status”

A

Do:

Fair Val of plan assets (LESS) PBO

FV - PBO

20
Q

How to calculate “return on plan assets” for the year in pension plans.

A

Fair val. of assets, beginning of the year X rate of return on plan assets

21
Q

Pension plans: when calculating amortization related to AOCI account, what must you do?

A

Multiply by effective TR!!

Aka - (1-TR)

22
Q

Minimum Recognized Amount to be reported

A

Unrecognized Gain/Loss (LESS) 10% of PBO…

take the excess, divide by remaining years in service life, to attain Minimum Recognized Amount

23
Q

Are pension plan investments reported at fair value?

A

Yes.

24
Q

Accruing post-retirement benefits:

A

Begins when hired,
Through eligible vesting date
(^^ “attribution period”)

25
Q

Compensated Absence Liability

A

Vacation days earned:

6 employees x 10 days x $100/day

(Hint: vacation pay is accrued if it vests or accumulates. Sick pay is accrued ONLY if it vests, not when it accrues.)

26
Q

If book basis of asset > tax basis (e.g. from depreciation methods,) a DEF. TAX LIABILITY should be established.

In future years, T.I. will be higher than Book Inc. when temporary difference reverses.

Journal Entries?

A

Year of original temporary diff:

Tax Expense : XX
Taxes Payable XX
Def. Tax Liability XX

Year of Reversal of temporary dif:

Tax Expense: XX
Def. Tax liability: XX
Taxes Payable XX

27
Q

What happens to a deferred tax asset arising from difs. in depreciation methods on balance sheet and taxable income?

A

The deferred tax asset decreases on a straight-line basis over life of asset.

28
Q

For IFRS how do we report all deferred tax assets and liabilities?

A

In the Noncurrent accounts.

29
Q

Calculating Effective Tax Rate

A

Income Tax Expense (EG calculate 190K * .3) / Book Income

30
Q

warranty expense

depreciation

A

w. e. = current deferred tax asset

dep. = noncurrent deferred tax liab.

31
Q

Calc. a deferred tax expense?

A

Total Temporary Dif * Rate

(Less - former temp. dif. times former rate)

= Deferred tax expense

32
Q

Overfunded pension plans?

A

Aggregated and current asset.

33
Q

Pension benefit liabilities - current and non-current?

A

Current: when expected benefits of next yr. exceed fair val. of plan assets by X amount

Non-current: the rest of underfunded

34
Q

Calc. gain/loss between actual vs. expected

A

Fair Val Plan Assets, Beg Bal x (dif. between ACTUAL - expected rate of return)

35
Q

Interest Cost for pension plan

A

Beg. year PBO x Discount Rate

36
Q

Service Cost for pension plan

A

FV YE - PBO YE

37
Q

How to calculate Gain on pension plan?

A

Beg Year FAIR VAL * ( Actual - expected rate of return)

38
Q

For pension accounting, what constitutes an increase in retained earnings?

A

Netting amortization of net gain (EG OCI), less deferred tax expense to net income.

39
Q

Are multiple defined benefit pension plans calculated separately?

A

Yes.

40
Q

Rule about deferred tax liabilities and assets:

A

Rule 1: Current are offset and presented as one amount

Rule 2: all noncurrent offset