intermediate accounting（赖红宁）4-4--ch19

1,Accounting for Postemployment Benefits,C,hapter,19,An electronic presentation by Douglas Cloud Pepperdine University,2,1.Understand the characteristics of pension plans.2. Explain the historical perspective of accounting for pension plans.3. Explain the accounting principles for defined benefit plans, including computing pension expense and recognizing pension liabilities and assets.4.Account for pensions.5.Understand disclosures of pensions.,Objectives,Continued,3,6.Explain the conceptual issues regarding pensions. 7.Understand several additional issue related to pensions. 8. Explain other post-employment benefits. 9.Account for OPEBs.10.Explain the conceptual issues regarding OPEBs.11.Understand present value calculations for pensions. (Appendix),Objectives,4,Characteristics of Pension Plans,A pension plan requires that a company provide income to its retired employees in return for services they provided during their employment.,5,Characteristics of Pension Plans,The retirement income, normally paid monthly, usually is determined on the basis of the employees earnings and length of service with the company.,6,Most companies design their pension plans to meet the Internal Revenue Code qualifications, which state that:,1.Employer contributions are deductible for income tax purposes.2.Pension fund earnings are exempt from income taxes.3.Employer contributions to the pension fund are not taxable to the employees until they receive their pension benefits.,Internal Revenue Code Qualifications,7,Pension Relationships,Company,Employees,8,Pension Relationships,Funding Agency (for pension plan),Company,9,Key Terms,Service Cost,Service cost is the actuarial present value of the benefits attributed by the pension benefit formula to service rendered by the employees during the current period.,10,Service Cost,Remaining Expected Period of Employment,11,Interest Cost,Interest cost is the increase in the projected benefit obligation due to the passage of time.,12,The expected return on plan assets is the expected increase in plan assets due to investing activities.,Expected Return on Plan Assets,13,Expected Return on Plan Assets,14,Why is it considered unrecognized?,Amortization of Unrecognized Prior Service Cost,The retroactive benefit to a pension plan is the prior service cost.,Prior service cost is not recorded in the accounts in the period granted. Instead, it is included amortized and included in computation of pension expense.,15,Amortization of Unrecognized Prior Service Cost,Date of Amendment or Adoption,Unrecognized Prior = Present Value of Benefit from the Service Cost Amendment or Adoption to be Received During Retirement,16,Gain or Loss,A gain or loss arises because actuaries make assumptions about many of the items included in the computation of pension costs and benefits.,17,Gain or Loss,The gain or loss is not recognized in the period in which it occurs, so it is called an unrecognized net gain or loss.,18,1.Amortization of any unrecognized net loss from previous periods (added to compute pension expense), or2.Amortization of any unrecognized net gain from previous periods (deducted to compute pension expense).,Gain or Loss,The gain or loss components of pension expense generally consists of one of the following items:,19,Components of Pension Expense,Service cost = Present value of benefits earned during the year using the discount rate,+Interest expense = Projected benefit obligation at beginning of the year x Discount rate,Expected return on plan assets = Fair value of plan assets at the beginning of the year x Expected long-term rate of return on plan assets,+Amortization of prior service cost = Present value of additional benefits/modification of the plan amortized over the remaining service lives of active employees,-Gain or loss = Amortization of the cumulative unrecognized net gain or loss from previous periods in excess of the corridor,20,The accumulated benefit obligation in excess of the fair value of the plan assets is a measure of the obligation of the company based on the legal concept of a liability.,Additional Pension Liability,21,Additional Pension Liability,Accumulated benefit obligationFair value of plan assets=Unfunded Accumulated Benefit ObligationPrepaid/accrued pension cost (credit balance)or +Prepaid/accrued pension cost (debit balance) =Additional Pension Liability,22,Additional Pension Liability,The additional pension liability “adjusts” the companys existing pension liability or asset to the amount of the unfunded accumulated obligation.,23,Disclosures,According to FASB Statement No. 132, a company must disclose specific information about a defined benefit pension plan. These items are shown in Slide 24.,24,3.The funded status of the plan, the amounts not recognized on the balance sheet, the amounts not recognized on the balance sheet, including the amount of any unamortized prior service cost, the amount of any unrecognized net gain or loss, the amount of any remaining unamortized, unrecognized net obligation or net asset existing at the adoption of FASB Statement No. 87, the net pension prepaid asset or accrued liability; and any intangible asset and the related amount of accumulated other comprehensive income.,Disclosures,1.A reconciliation of the beginning and ending balances of the projected benefit obligation.,2.A reconciliation of the beginning and ending balances of the fair value of the plan assets.,4.The amount of pension expense.,5.The amount included within other comprehensive income from a change in the additional pension liability.,6.The discount rate, the rate of compensation increase, and the expected long-term rate of return on the plan assets.,7.The amounts and types of securities included in the plan assets.,25,Pension Expense Equal to Funding,Facts for the Carlisle Company1.The company adopts a pension plan on January 1, 2004. No retroactive benefits were granted to employees.2.The service cost each year is: 2004, $400,000; 2005, $420,000; 2006, $432,000.3.The projected benefit obligations at the beginning of each year is: 2005, $400,000; and 2006, $840,000.,Continued,26,Pension Expense Equal to Funding,4.The discount rate is 10%.5.The expected long-term rate of return on plan assets is 10%.6.The company adopts a policy of funding an amount equal to the pension expense and makes a payment at the end of each year.7.Plan assets are based on the amounts contributed each year, plus a return of 10%, less $20,000 to retired employees (beginning 2005).,27,Pension Expense Equal to Funding,December 31, 2004:,Pension Expense400,000Cash400,000,December 31, 2005:,Pension Expense420,000Cash420,000,28,Pension Expense Equal to Funding,December 31, 2006:,Pension Expense432,000Cash432,000,Note that the interest cost and the return on the plan assets offset each other each year.,29,Pension Expense Greater Than Pension Funding,December 31, 2004:,Pension Expense400,000Cash385,000Prepaid/Accrued Pension Cost15,000,Carlisle Company funds $385,000 in 2004, $400,000 in 2005, and $415,000 in 2006.,Liability,30,December 31, 2005:,Pension Expense421,500Cash400,000Prepaid/Accrued Pension Cost21,500,Pension Expense Greater Than Pension Funding,31,December 31, 2006:,Pension Expense435,650Cash415,000Prepaid/Accrued Pension Cost20,650,Pension Expense Greater Than Pension Funding,The balance in the liability account is $57,150,32,Pension Fund Less Than Pension Funding and Expected Return Different From Discount Rate,December 31, 2004:,Pension Expense400,000Prepaid/Accrued Pension Cost15,000Cash415,000,Carlisle Company funds $415,000 in 2004, $425,000 in 2005, and $440,000 in 2006. The expected and actual return is is 11%.,33,December 31, 2005:,Pension Expense414,350Prepaid/Accrued Pension Cost10,650Cash425,000,Pension Fund Less Than Pension Funding and Expected Return Different From Discount Rate,The balance in the asset account is $25,650,34,December 31, 2006:,Pension Expense420,322Prepaid/Accrued Pension Cost19,678Cash440,000,The balance in the asset account is $44,872,Pension Fund Less Than Pension Funding and Expected Return Different From Discount Rate,35,Pension Expense Including Amortization of Unrecognized Prior Service Cost,Carlisle Company funds $385,000 in 2004, $400,000 in 2005, and $415,000 in 2006. The company awarded retroactive benefits to employees. The unrecognized prior service costs were estimated to be $2 million. Carlisle decided to increase its contribution by $290,000 per year. The $2 million is amortized over 20 years.,36,Pension Expense700,000Cash ($385,000 + $290,000)675,000Prepaid/Accrued Pension Cost25,000,December 31, 2004:,Pension Expense Including Amortization of Unrecognized Prior Service Cost,37,Pension Expense705,750Cash 685,000Prepaid/Accrued Pension Cost20,750,December 31, 2005:,Pension Expense Including Amortization of Unrecognized Prior Service Cost,38,Pension Expense701,690Cash 700,000Prepaid/Accrued Pension Cost1,690,December 31, 2006:,Pension Expense Including Amortization of Unrecognized Prior Service Cost,39,Computation of Net Gain or Loss,Cumulative Projected Fair Excess Unrecognized Benefit Value Unrecognized Recognized Net Loss Obligation of Plan Net Loss Net Loss Year (Gain) Actual Assets Corridor (Gain) (Gain),2004$13,000 $110,000$100,000$11,000$2,000$2002005(2,300)135,000130,00013,500-200618,700 168,000170,00017,0001,700170200727,500230,000215,00023,0004,500450,40,Assume the following facts for the Devon Company at the end of 2004:,Recognition of Additional Pension Liability,Projected benefit obligation$2,000,000Accumulated benefit obligation1,200,000Plan assets (fair value)1,000,000Prepaid/accrued pension cost (liability)50,000Unrecognized prior service cost300,000,41,Recognition of Additional Pension Liability,Remember that the difference between the two benefit obligations is that the PBO includes assumed future pay increase, whereas the ABO is based on current pay levels.,Accumulated benefit obligation$1,200,000 Plan assets (fair value)(1,000,000)Unfunded accumulated benefit obligation$ 200,000,42,Recognition of Additional Pension Liability,The unfunded accumulated benefit obligation of $200,000 is the minimum liability that the company must recognize.,Accumulated benefit obligation$1,200,000 Plan assets (fair value)(1,000,000)Unfunded accumulated benefit obligations$ 200,000,43,Recognition of Additional Pension Liability,Unfunded accumulated benefit obligations$200,000 Prepaid/accrued pension cost (liability) (50,000)Additional pension liability$150,000,Continued,44,Recognition of Additional Pension Liability,Assume Devon Company has an unrecognized prior service cost of $120,000.,The intangible asset cannot exceed the unrecognized prior service cost.,Continued,45,Recognition of Additional Pension Liability,Deferred Pension Cost120,000Excess of Additional Pension Liability Over Unrecognized Prior Service Cost30,000Additional Pension Liability150,000,Continued,December 31, 2004:,46,Recognition of Additional Pension Liability,Stockholders Equity,Common stock$600,000 Additional paid-in capital230,000 Retained earnings170,000 Accumulated other comprehensive income (loss):Excess of additional pension liability over unrecognized prior service cost (30,000)Total stockholders equity$970,000,47,Assume the following facts for the Devon Company at the end of 2005:,Recognition of Additional Pension Liability,Accumulated benefit obligation1,300,000Plan assets (fair value)1,220,000Prepaid/accrued pension cost (liability)60,000Unrecognized prior service cost110,000,Continued,48,Recognition of Additional Pension Liability,Unfunded accumulated benefit obligations $80,000 Prepaid/accrued pension cost (liability) (60,000) Additional pension liability$20,000,49,Since the additional liability is less than the unrecognized prior service cost, the company does not include any reduction in its accumulated other comprehensive income for the year.,Recognition of Additional Pension Liability,50,Pension Liabilities,Five alternatives for meeting the recognition-measurement criteria of a liability that have been identified as follows:,1.Amount attributed to employee service to date.2.Contributions based on an actuarial funding method.3.Termination liability.4.Amount of vested benefits.5.Amount payable to retirees.,51,Termination Benefits Paid to Employees,FASB Statement No. 88 requires that a company record a loss and a liability for termination benefits when the following two conditions are met:,1.The employee accepts the offer, and2.The amount can be reasonably estimated.,52,Other Postemployment Benefits,Many companies offer additional benefits to former employees after their retirementwidely referred to as OPEB.,What are the major differences between postretirement healthcare benefits and pensions?,53,BeneficiaryRetired employee (someRetired employee,residual benefit tospouse, andsurviving spouse)dependentsBenefitsDefined, fixed dollar Not limited, paid asamount, paid monthlyused, varies geographicallyFundingFunding legally requiredUsually not funded and tax deductiblebecause not legallyrequired and not taxdeductible,Other Postemployment Benefits,Item Pensions Healthcare,54,OPEB Expense,1.Service cost2.Interest cost3.Expected return on plan assets4.Amortization of unrecognized