139 20210602014221 Kieso Inter Ch20 - IfRS (Pensions)
139 20210602014221 Kieso Inter Ch20 - IfRS (Pensions)
139 20210602014221 Kieso Inter Ch20 - IfRS (Pensions)
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CHAPTER 20
ACCOUNTING FOR PENSIONS AND
POSTRETIREMENT BENEFITS
Intermediate Accounting
IFRS Edition
Kieso, Weygandt, and Warfield
20-2
Learning Objectives
1. Distinguish between accounting for the employer’s pension plan and
accounting for the pension fund.
2. Identify types of pension plans and their characteristics.
3. Explain alternative measures for valuing the pension obligation.
4. List the components of pension expense.
5. Use a worksheet for employer’s pension plan entries.
6. Describe the amortization of past service costs.
7. Explain the accounting for unexpected gains and losses.
8. Explain the corridor approach to amortizing gains and losses.
9. Describe the requirements for reporting pension plans in financial
statements.
10. Explain special issues related to postretirement benefit plans.
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Accounting for Pensions and Postretirement Benefits
Reporting Pension
Nature of Pension Accounting for Using a Pension
Plans in Financial
Plans Pensions Worksheet
Statements
Pension Plan
Administrator
Employer Contributions
Retired
Employees Benefit Payments Assets &
Liabilities
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LO 1 Distinguish between accounting for the employer’s
pension plan and accounting for the pension fund.
Nature of Pension Plans
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LO 1 Distinguish between accounting for the employer’s
pension plan and accounting for the pension fund.
Nature of Pension Plans
Two questions:
(1) What is the pension obligation that a company should
report in the financial statements?
IASB’s
choice
Illustration 20-3
1. Service Costs +
Actuarial present value of benefits attributed by the pension
benefit formula to employee service during the period.
5. Gain or Loss +-
Volatility in pension expense can result from sudden and
large changes in the fair value of plan assets and by changes
in actuarial assumptions that affect the defined benefit
obligation.
$560,000
Plan assets, 1/1/10
546,200
Pension liability
13,800
On January 1, 2010, Doreen Corp., through plan amendment,
grants prior service benefits having a present value of
100,000 For 2010, prepare a pension work sheet for Doreen Corp. that
Instructions:
Discount
shows therate
journal entry for pension expense.
20-21 9% LO 6 Describe the amortization of past service costs.
Using a Pension Work Sheet
($40,920) liability
20-22 LO 6
Using a Pension Work Sheet
Gain or Loss
Unexpected swings in pension expense can result from:
Volatility
The profession decided to
reduce the volatility with
smoothing techniques.
Corridor Amortization
IASB uses the corridor approach for amortizing the
accumulated net gain or loss balance when it gets too large.
Amortization
Defined benefit obligation $ (3,100,000)
Plan assets 2,900,000 $ 3,100,000
Corridor percentage 10%
Corridor amount 310,000
Accumulated loss 475,000
Excess loss subject to amortization 165,000
Average remaining service ÷ 7.0
Amortized to pension expense $ 23,571
Illustration 20-19
Illustration 20-20
20-32 LO 8
Gains and Losses
Illustration 20-21
Illustration 20-19
20-33 LO 8
Using a Pension Work Sheet
P20-2: Katie Day Company adopts IAS 19 in accounting for its defined
benefit pension plan on January 1, 2000, with the following beginning
balances: plan assets $200,000; defined benefit obligation $250,000.
Other data are as follows.
2010 2011 2012
Annual service cost $ 16,000 $ 19,000 $ 26,000
Discount rate and expected rate of return 10% 10% 10%
Actual return on plan assets 17,000 21,900 24,000
Annual funding (contributions) 16,000 40,000 48,000
Benefits paid 14,000 16,400 21,000
Unrecognized past service cost (plan amended, 1/1/11) 160,000
Amortization of unrecognized past service cost 54,400 41,600
Change in actuarial assumptions, Dec. 31 PBO 520,000
Average remaining service life 15 years 15 years 15 years
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Using a Pension Work Sheet
20-35
Using a Pension Work Sheet
20-36
Using a Pension Work Sheet
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($49,700) liability
Using a Pension Work Sheet
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Using a Pension Work Sheet
($85,130) liability
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Using a Pension Work Sheet
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Reporting Pension Plans in Financial Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting Pension Plans in Financial Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting Pension Plans in Financial Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting Pension Plans in Financial Statements
Special Issues
Other postretirement benefits
Curtailments and settlements
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LO 10 Explain special issues related to
postretirement benefit plans.
IFRS and U.S. GAAP separate pension plans into defined contribution
plans and defined benefit plans. The accounting for defined contribution
plans is similar.
Both IFRS and U.S. GAAP compute unrecognized past service costs
(PSC) (referred to as prior service cost in U.S. GAAP) in the same
manner. However, IFRS recognizes any vested amounts immediately
and spreads unvested amounts over the average remaining period to
vesting. U.S. GAAP amortizes PSC over the remaining service lives of
employees.
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Under IFRS, companies have the choice of recognizing actuarial gains
and losses in income immediately (either net income or other
comprehensive income) or amortizing them over the expected
remaining working lives of employees. U.S. GAAP does not permit
choice.
For defined benefit plans, U.S. GAAP recognizes a pension asset or
liability as the funded status of the plan (i.e., defined benefit obligation
minus the fair value of plan assets). IFRS recognizes the funded
status, net of unrecognized past service cost and unrecognized net
gain or loss.
The accounting for pensions and other postretirement benefit plans is
the same under IFRS. U.S. GAAP has separate standards for these
types of benefits, and significant differences exist in the accounting.
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