...MEMO Our company has recently acquired another company which has two segments and two different pension plans. These segments could create reporting issues which we would want to eliminate. To fulfill this objective, we should first understand what the different postretirement plans are and what their reporting requirements are after which we would identify steps to eliminate the two segments. * Defined Benefit Pension Plan In a defined benefit pension plan, employee gets a specified monthly benefit at retirement. The amount of benefit may be decided by the company based on the salary and service level of the employee. The reporting requirement for this pension plan is to include information in two categories. Category 1: The plan should include information in two financial statements: (a) A statement of plan net assets that provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets (b) A statement of changes in plan net assets that provides information about the year-to-year changes in plan net assets The notes requirement should address the following: * Brief plan description * Summary of significant accounting policies * Information about contributions, legally required reserves, and investment concentrations Category 2: Information should be presented in two schedules: (a) A schedule of funding progress that reports the actuarial value of assets, the actuarial accrued liability, and the relationship...
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...MEMORANDUM To: The Chief Executive Officer –ABC Inc. From: Vincent Mokwenye, Financial Controller. Subject: Pension Plan Disclosure and Reporting Requirement CC: This brief memo will address the topic of Pension Plans. Specifically, it shall discuss the two basic types of pension plans and the other postretirement plan. Then it shall examine the purpose of pension plan reporting requirements, their effect on the financial statements, and the significance of each type of pension plan. It will also examine the positive and negative implications of each of the pension plans. Defined Benefit Pension Plan - A defined benefit plan is a retirement plan set up to pay a fixed annual amount to eligible employees during their retirement. It is called defined benefit because the quarterly or annual contribution is based upon an actuarial determination of what the participants' retirement benefits should be, not on profits. The formulas look at how much money must be contributed in order for there to be enough money to pay a FIXED amount of benefit(s) to recipients in the future. These projections use a reasonable expected rate of return (401kpsp.com, 2012). Defined Contribution Plan- A defined contribution plan is a retirement plan that requires that an individual "account" be set up for each participant in the plan. It is called "defined contribution" because a participant can only contribute a fixed maximum amount to the plan each year. The contributions are not based...
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...Accounting SUBJECT: Reporting of Pension Plan in acquisition of Company ABC DATE: June 11, 2013 In the acquisition of Company ABC, many factors must be considered, including the acquisition of the company’s pension plans and the addition of two segments. After careful analysis, the two operating segments have caused a loss to the company and must be eliminated. This memo will outline the reporting procedures for the pension plans and the necessary steps that must be taken to eliminate the segments. Defined Contribution Plan One of the most frequently encountered and widely used pension plans is the defined benefit plan. Under this plan, the employer is required to contribute a pre-determined amount of the employee’s salary to this pension plan. The amount of benefits paid out at the onset of retirement are not guaranteed and “are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, 2011). Employees also have the option of designating where their funds are invested, whether it be in stocks or in fixed-income securities. The defined contribution plan has become popular among employers due to no risk on behalf of the employer and the ease of reporting. Variations of the plan include: thrift plans, savings plans, 401(k) plans, profit-sharing plans, and incentive savings plans. Because of its simplicity in reporting, the defined contribution plan periodic pension expense is equal to the...
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...Controller DATE: January 29, 2015 SUBJECT: Required Reporting for Pensions and Other Postretirement Plans Several issues have to be considered in the wake of the firm’s recent acquisition of a new company. First, the acquired company has two different pension plans whose reporting requirements are unfamiliar to the firm. Second, the acquired company has two segments that do not fit the firm’s requirements, and should be targeted for closure. This memo describes the reporting requirements of pension plans, namely, defined contribution plans, defined benefit plans and Other Postretirement Plans or OPEBs. In addition, this memo describes how to close an unwanted segment. A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period. In the other hand, defined benefit plans specify the amount of pension to be paid out to plan recipients in the future (Cathey, Clark & Schroeder, 2011). The fixed monthly income to be paid to the employee is calculated using a pre-determined formula that usually takes into account the employee’s years of service, annual salary, and in some instances, age (Ruppel, 2010). Both pension plans guarantee the employee will receive monetary compensations, either directly or indirectly, from the employer at retirement. The financial reporting of defined contribution plans is straightforward. The employer only records the pension expense that equals the cash contribution to the employee. For...
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...GASB 68: An Examination of Affects to the Pension Problem Including Stakeholder Interests Private retirement systems are regulated by the Pension Benefit Corporation (Employee Retirement Income Security Act of 1974); state and local governments are not subject to federal regulation but rather voluntarily comply with GASB standards. (Mattrell, 2013) With all the newsworthy stories involving public pensions, analysts were becoming increasingly critical of GASB regulation over the pension systems. When compared to the requirements of the private retirement systems, it was lacking in transparency. Thus, GASB replaced statement 27 with 68. Government entities with a financial period ending June 30, 2015 will be first to experience the implementation of GASB 68. Many feel that GASB 68 is part of the solution for the ever-increasing public pension crisis in the United States but is reporting for the first time ever in most cases a rather large Net Pension Liability (NPL) on the face of the financials going to solve the problem of underfunded pensions. Employees within the public sector generally enjoy a rather generous pension when compared to others but when they are looked at for their sustainability they fail miserably. Chicago retirement system for teachers, fire fighters and others us underfunded by nearly $24 billion, with residents facing potential 150% increase in property taxes. (Birrer, 2014) Public pension systems in the United States are in need of change if they...
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...| [Company Name] | Memo To: | Chief Executive Officer | From: | Lola Fujino | cc: | | Date: | June 21, 2015 | Re: | Segments and Pension Plan | | | The recent acquisition by our company has created two issues which need to be addressed; the two segments which are required to be reported and the two different pension plans. My goal is to eliminate the segments as well as determine the appropriate method for reporting both pension plans. Discussed herein are descriptions of the defined contribution plan, the defined benefit plan, as well as other post retirement plans. Furthermore, I have include a recommendation as to eliminating the two segments. The expansion of our organization is indicative of our growth and success; however, with change comes difficulty in fully disclosing each financial aspect in accordance with Generally Accepted Accounting Principles. In our financial reporting, we must be thorough in explaining each of our pension plans. Beginning with the defined contribution plan, contributed to by both employee and employer of which only employer contributions are guaranteed. Accounting for this method is simple in that we shall record our liability to the extent of the contributions made (Schroeder, Clark, & Cathey, 2011). The defined benefit plan is more complex; this plan guarantees a specific benefit amount per month at retirement. The benefit amount is determined by several factors: employee salary, years of employment, and age. With...
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...Reporting Paper INTERNAL MEMORANDOM To: CEO From: Papa Rydoo Date: October 25, 2010 Reference: Postretirement Plans Introduction Acquisition of a company leads to many changes in the company and especially in the area of the retirement benefit plans for our company. It is complicated adjusting to benefits plans but with the required reporting, the transition will be smooth. The different types of pension plans we will focus on are; defined contribution, defined benefit, and other postretirement plans. Defined Contribution Plan (DCP) Defined contribution plan is a retirement plan that an employer promises to contribute toward an employee’s retirement funds periodically. Most companies will match whatever an employee contributes towards the fund. However, there would be no promise as to the ultimate benefits that would be paid into the funds because the retirement benefits are determined by the returned earned on the contributions to the funds during the investment period (Schroeder, Clark, & Cathey, 2005, p. 445). DCP is recorded on the financial statements as a pension expense, it is a straightforward transaction and it carries no risk for the employer because all the risks go to the employee. Defined Benefit Plan (DBP) Defined benefit plan is the amount of retirement benefits an employee would receive in the future but the terms are defined by the company. Most companies would have terms that would require employees to have at least 30 years of service, and...
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...Reporting Paper Janis Maraya ACC 541 February 20, 2015 William Montgomery To: CEO From: Controller Date: February 20, 2015 ------------------------------------------------- Subject: Pension Plans and Eliminating Segments This memo is to provide a response to the new CEO who is requesting information regarding the following areas. The first discussion is and explanation of the required reporting on retirement plans that includes defined contribution, defined benefit, and other postretirement plans. The memo will also include what may happen when two segments are to be eliminated. Defined Contribution Plan A defined contribution plan is when an employer puts aside a certain percentage periodically to the employees benefit plan. There are two types of defined contribution plan: Defined contribution health and welfare plans— This plan is an account for the employee that calculates the amount by using the participating employee’s account instead of his or her benefits. “The benefits a plan participant will receive are limited to the amount contributed to the participant's account, investment experience, expenses, and any forfeitures allocated to the participant's account. These plans also include flexible spending arrangements. (FASB ASC 715-70-20)” Defined contribution postretirement plan— A participant that uses this plan is provided an individual plan that is determined by the amount of services he or she has rendered. “Under a defined contribution postretirement...
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...M E M O R A N D U M To: Michael Jones, CEO, XYZ Company From: Sonja Bauer, QRS Accounting Date: September 3rd, 2012 Re: Acquisition of ABC Company: Pension Plan and Segment Reporting The acquisition of ABC Company resulted in the acquisition of its two pension plans, to include a defined contribution plan, and a defined benefit plan. The transaction also resulted in XYZ Company gaining control of two segments that offer no real value to its current business, as they are redundant, and therefore will be eliminated. What follows is an overview of the reporting requirements for the pensions, and what must take place for the two segments to be disposed of. Under the defined contribution plan, ABC Company contributed 6% of their employees’ salary, per pay period, to a pension fund. The eventual retirement benefit is determined by the rate of return on the invested pension funds (Schroeder, 2011). In other words, ABC Company makes no guarantee of a specified amount that would be paid to an employee upon retirement. ABC Company’s only expense for the defined contribution plan is the cash that they contributed to the pension plan fund. Accordingly, the amount of the promised annual contribution would equal the periodic pension expense (Schroeder, 2011). XYZ Company will be required to disclose the plan on financial statements, as well as describe the employee groups covered and the basis for determining contributions, as well as any significant changes from one period to...
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...June 29, 2010 Sub: Acquisition & Pension Plans Acquisition Analysis & Benefits from Acquisition The 100% acquisition of other business by the manufacturing company will be beneficial. It is because; full acquisition of the other business will bring two new segments for the manufacturing company that will pose a higher growth rate. It will also facilitate two new pension plans that will be beneficial to motivate the employees. But at the same time, the two segments and pension plans are entirely new for the business that may affect its profitability and effectiveness. The 100% acquisition by the manufacturing company will facilitate opportunity of the business expansion by intensifying its existing business activities. The manufacturing business would be able to capture new market and business areas by eliminating the need of setting up the business in new areas. It would also be helpful to establish a competitive advantage for the business that would cause an increase in its competitive position. The acquisition would increase the efficiency in resource utilization that would reduce competition in the industry. The business expansion would cause an increase in market share of manufacturing company that would increase awareness about the product and services of it. Thus, acquisition will be beneficial for manufacturing company. Pension Plans The 100% acquisition of other company by the manufacturing company will also bring two new pension plans that will be effective to...
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...CHAPTER 20 ACCOUNTING FOR PENSIONS AND POSTRETIREMENT BENEFITS IFRS questions are available at the end of this chapter. TRUE-FALSE—Conceptual Answer F T F T T F F T F T F F T F T F T F F T No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Description Funded pension plan. Qualified pension plans. Defined-contribution plan liability. Defined-benefit plans. Vested benefit obligation. Accumulated benefit obligation. Definition of service cost. Definition of interest cost. Recognizing accumulated benefit obligation. Pension Asset /Liability balance. Plan amendment and projected benefit obligation increase. Years-of-service amortization method. Expected return and actual return. Unexpected gains and losses. Accumulated OCI (G/L) account and the corridor. Amortization of net gains and losses. Recording prior service cost. Reporting accumulated OCI (PSC) on the balance sheet. Other comprehensive income (PSC) and net income. Reconciliation of PBO and fair value of plan assets. MULTIPLE CHOICE—Conceptual Answer d c d c b b a c a a d d d a c b No. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. Description Factors considered by actuaries. Process of funding a pension plan. Accounting problems in pension plans. Nature of a defined-contribution plan. Nature of a defined-benefit plan. Defined-contribution plan characteristics. Accounting for a defined-benefit plan. Pension obligation measurement using future salaries. Definition...
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...Florida Pension Article Rebuttal Florida Pension Article Rebuttal On May 31, 2013, Florida’s Governor Rick Scott signed Senate Bill 534 into the Florida Statues. This Bill was sponsored by Senator Jeff Brandes and imposes new financial reporting requirements for local government pension plans. However in the article titled “Florida House Passes Legislation Relating to Local Pension Plans,” Mr. Volz states that “the Bill equips local pension plan administrators, employees and taxpayers with improved universal tools to evaluate the financial stability of local pension plans.” There is no proof that this Bill is improved as the evaluation tools do not accurately evaluate the financial stability of the plans. The tool is not universal, as the State Government Plan, the Florida Retirement System, is not subject to this Bill. This article was influenced by the politicians that are for this Senate Bill. Only those that had something positive to say about it were quoted in the article. The Senate President was quoted thanking Senator Brandes, Speaker Weatherford, and the colleagues in the House for helping more the reform forward (Volz, May). This article is not reliable, credible or even valid as it does not provide any evidence to back up its claims and it only presents the one side of the story. What this article does not say is the Florida League of Cities, the Florida Public Pension Trustee Association, and the actuaries of many of the states pension plans all oppose...
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...Is the Difference in Accounting Treatment of Post-Retirement Benefits under IFRS Beneficial or Detrimental to the Financial Position of a Company Currently Reporting Under US GAAP? Megan N. Cook, CPA, CFE Accountancy 521 Professor Lawrence March 9, 2009 The first pension plan offered by an American employer was that of American Express in the year 1875. Amex’s plan did not resemble the plans that we see in today’s time; the first “modern” defined benefit plan was created in 1940 by the automotive behemoth General Motors. These plans of the past still do not resemble plans that we are familiar with today. In the past, employers could exercise a “pension put” option and, in essence, close the plan down at the current level of funding and turn the assets over to the retirees. This is not an optimal situation, as many plans at the time were severely under funded and retirees would be left with pennies on the dollar of what they were counting on for retirement. (Fortune, 2005) Post-retirement benefits are volatile on a couple of different fronts; up until the reforms in 1974 which created ERISA and the PBGC, employees had to put blind faith in their employers to secure their futures after their working years were over. (Fortune, 2005) On another front, these benefits pose a significant accounting problem – how should a company account for the costs and liabilities associated with these benefits they had to give their employees at a later and relatively indeterminable...
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...PART A How a debt is classified impacts the reporting requirements and hence in its presentation in the financial statements. The following compares the current reporting for debt and each type of bonds. • Long term bond liabilities – reported at amortized value. If a bond was issued at a premium, the total bond liability reported by the issuer is equal to the par value plus the unamortized premium. Par value of bond liability ± Unamortized premium (discount) • Capital leases are included in the company’s liabilities while operating leases are not. Capital leases are recorded at the present value of the periodic lease payment discounted at the lessee’s cost of capital less the cumulative principal component of the periodic lease payment. • Mortgage payable are reported not unlike that of the reporting requirement for bonds and capital leases liabilities. The present value of the periodic payments is computed at the discount rate adjusted for the principal payment component of the periodic mortgage payment. • Pension liability. It is that a minimum liability related to employee pension plan be reported if at the balance sheet date the accumulated benefit obligation or ABO exceeds the fair value of the plan assets. The ABO estimates the present value of benefits already earned by the company’s employees without considering future salary benefits. • Debt restructuring. Given substantive modification of any of the terms of the existing debt or a purchase or...
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...Accounting 322 Exam 2 Essays 16 Pre-Tax Accounting Income: Taxable Income: Deferred Tax Liability: This occurs when the pretax accounting income is more than taxable income. This comes from revenues being reported on the income statement before the tax return or an expense that is recognized on the tax return before the income statement. This creates a liability for the income tax deferred that will be paid in the future when the related assets are recovered or liabilities settled. The temporary difference reverses, pretax accounting income will be less than taxable income to compensate for the liability. Can also be better economically than a DTA because of the time value of money, it acts as an interest free loan. (Depreciation) Deferred Tax Asset: This occurs when taxable income is more than pretax accounting income. This comes from revenues being recognized on the tax return before the income statement or expenses being recognized on the income statement before the tax return. This a tax benefit in the form of a future deductible amount. All deductible amounts, such as loss carryfoward create deferred tax assets. If the DTA is more like than not that some portion or all of the amount will be realized, it is lowered by a Valuation Allowance account. Temporary Differences: This is from the differences in financial account and taxes, and the reported amount of and asset/liability and its tax basis. For example, pretax account income may be greater than taxable income...
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