What is a pension plan? According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
Pension Accounting
How to Account for Pensions
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Introduction to Pension Accounting
In addition to salaries, many companies offer other benefits to their employees such as pension plans, health insurance, stock option benefits, fitness memberships, or life insurance plans. There are very specific requirements around pension accounting, which will be outlined in this article.
For regular benefits, the accounting is relatively simple – the employer records an expense for the amount of the benefits employees earn in a year.
However, the accounting treatment becomes more complicated when employees earn the rights to the benefits NOW but receive those benefits later, in the FUTURE. A clear example of such a benefit is the pension.
The income statement / profit and loss account is made up as follows:
Service cost / new pensions accrued |
Always in operating costs |
+ Interest cost |
Under US GAAP always in operating costs but under IFRS may be in operating or financial costs |
– Expected return on assets |
Under US GAAP always in operating costs but under IFRS may be in operating or financial costs |
+ Actuarial loss net of experience gain on plan assets |
Under IFRS not expensed. Under US GAAP either expensed in full or amortized over time |
Net pension expense |
To calculate a pension expense, the employer must report the service and interest cost, expected return on plan assets, amortization of prior service cost and effects of gains and losses.
The real cost of pensions can't be measured in cash flow terms: how much is being paid out this year, as opposed to the contributions being put in. ... That is because pensions are a debt which must be paid. The problem is that low bond yields have forced up the present value of future benefits and widened deficits
What is a pension plan? According to U.S. GAAP, how should pension plans be accounted for?...
What is a pension plan? According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
What is a pension plan? According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
What is a pension plan? According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
According to U.S. GAAP, how should pension plans be accounted for? What are the components of a current year's pension plan expense? Discuss each of these components. Why are pension plans problematic to account for?
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SaulGroup, Inc., a U.S.-based corporation, currently uses U.S. GAAP to prepare its consolidated financial statements. SaulGroup is considering switching to IFRS and asking for your help in assessing the impact this change will have on its financial statements. SaulGroup’s accounting principles differ from IFRS in the following areas– restructuring, pension plan, stock options, revenue recognition, and bonds payable. Instructions: Please respond to the following questions in each scenario: 1. Restructuring Provision On December 1, 2017 the management of SaulGroup, Inc....
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Exercise 20-12 Windsor Company received the following selected information from its pension plan trustee concerning the operation of the company's defined benefit pension plan for the year ended December 31, 2017 Projected benefit obligation Market-related and fair value of plan assets Accumulated benefit obligation Accumulated OCI (G/L)-Net gain January 1, 2017 $1,525,000 794,000 1,605,000 0 December 31, 2017 $1,553,000 1,124,400 1,724,400 (202,500) The service cost component pension expense for employee services rendered in the current year amounted to $78,000 and...
Question Shamrock Company received the following selected information from its pension plan trustee concerning the operation of the company's defined benefit pension plan for the year ended December 31, 2017. December 31, 2017 January 1, 2017 $1,491,000 $1,517,000 Projected benefit obligation Market-related and fair value of plan assets Accumulated benefit obligation 804,000 1,138,400 1,587,000 1,704,700 Accumulated OCI (G/L)-Net gain (199,100 ) The service cost component of pension expense for employee services rendered in the current year amounted to $76,000 and...