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1、,Accounting for Pensions and Other Postretirement Benefits,Chapter 20,Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield,Prepared by Coby Harmon, University of California, Santa Barbara,Accounting for Pensions and Postretirement Benefits,Alternative measures of liability Capitalizati
2、on versus non-capitalization Components of pension expense,Nature of Pension Plans,Accounting for Pensions,Using a Pension Worksheet,Minimum Liability,Reporting Pension Plans in Financial Statements,Defined contribution plan Defined-benefit plan Role of actuaries,2006 entries and worksheet Amortizat
3、ion of prior service cost 2007 entries and worksheet Gain or loss 2008 entries and worksheet,Minimum liability computation Financial statement presentation Worksheet example,Within the financial statements Within the notes to the financial statements 2009 entries and worksheeta comprehensive example
4、 Special issues,A Pension Plan is an arrangement whereby an employer provides benefits (payments) to employees after they retire for services they provided while they were working.,Pension Plan Administrator,Contributions,Employer,Retired Employees,Benefit Payments,Assets & Liabilities,LO 1 Distingu
5、ish between accounting for the employers pension plan and accounting for the pension fund.,Nature of Pension Plans,Some pension plans are:,LO 1 Distinguish between accounting for the employers pension plan and accounting for the pension fund.,Contributory: employees voluntarily make payments to incr
6、ease their benefits. Noncontributory: employer bears the entire cost. Qualified pension plans: offer tax benefits.,Pension fund should be a separate legal and accounting entity.,Nature of Pension Plans,Defined-Contribution Plan,Defined-Benefit Plan,Employer contribution determined by plan (fixed) Ri
7、sk borne by employees Benefits based on plan value,Benefit determined by plan Employer contribution varies (determined by Actuaries) Risk borne by employer,Actuaries estimate the employer contribution by considering mortality rates, employee turnover, interest and earning rates, early retirement fre
8、quency, future salaries, etc.,Statement of Financial Accounting Standard No. 87, “Employers Accounting for Pension Plans,” 1985,Types of Pension Plans,LO 2 Identify types of pension plans and their characteristics.,Two questions:,What is the pension obligation that a company should report in the fin
9、ancial statements? What is the pension expense for the period?,Accounting for Pensions,LO 3 Explain alternative measures for valuing the pension obligation.,LO 3 Explain alternative measures for valuing the pension obligation.,The employers pension obligation is the deferred compensation obligation
10、it has to its employees for their service under the terms of the pension plan.,FASBs choice,Alternative measures of the Liability,Accounting for Pensions,Illustration 20-3,Capitalization versus Noncapitalization,FASB Statement No. 87 represents a compromise that combines some of the features of capi
11、talization with some of the features of noncapitalization. Companies do not capitalize some elements of the pension plan in the accounts and the financial statements.,Accounting for Pensions,LO 3 Explain alternative measures for valuing the pension obligation.,Service Costs,Interest on Liability,Act
12、ual Return on Plan Assets,Amortization of Unamortized Prior Service Costs,Gain or Loss,+,+,+-,+,+-,Accounting for Pensions,LO 4 List the components of pension expense.,Components of Pension Expense,1.,2.,3.,4.,5.,Effect on Expense,Service Costs,+,Accounting for Pensions,LO 4 List the components of p
13、ension expense.,Components of Pension Expense,1.,Effect on Expense,Actuarial present value of benefits attributed by the pension benefit formula to employee service during the period.,Accounting for Pensions,LO 4 List the components of pension expense.,Components of Pension Expense,Effect on Expense
14、,Interest for the period on the projected benefit obligation outstanding during the period. The interest rate (settlement rate) should reflect the rate at which companies can effectively settle pension benefits.,Interest on Liability,+,2.,Accounting for Pensions,LO 4 List the components of pension e
15、xpense.,Components of Pension Expense,Effect on Expense,The actual return on plan assets is the increase in pension funds from interest, dividends, and realized and unrealized changes in the fair-market value of the plan assets.,Actual Return on Plan Assets,3.,+-,Accounting for Pensions,LO 4 List th
16、e components of pension expense.,Components of Pension Expense,Effect on Expense,Plan amendments often increase benefits for service provided in prior years. The cost (prior service cost) of providing these retroactive benefits is allocated to pension expense over the remaining service-years of the affected employees.,Amortization of Unamortized Prior Service Costs,+,4.,Accounting for Pensions,LO 4 List the components of pension expense.,Components of Pension Expense,
