“Defined Benefit Mark to Market”
Discuss the “Defined Benefit Mark to Market” change in accounting and its impact on the financial statements. What is “mark to market”? Refer to page 26, and 101
In January 27, 2012 UPS announces their decision to change their pension accounting method to, “Mark to Market” which was previously adopted in the fourth quarter of 2011. This actual change of the accounting system deals with the Internal Revenue code section 475. It’s moving from a cash basis capital gain or losses to a “mark to market” which is ordinary gains and ordinary losses better known as fair value of the market price. Using this method UPS recognizes its pension gain and losses on an annual basis instead of recognizing the impact over the years. This change of accounting method has not change in their pension’s participant’s benefits plans.
The benefit is that ordinary losses may be deducted in full against any type of tax return. UPS for instance, revised their past financial statements and recognized as if they occurred in the prior year and declared its losses which add up to the corporate income. They incurred in pretax losses of $4.831 billion, $827 million and $112 million can be able to carry back three years for tax immediately refund and then carry forward up to 20 years. The benefits of the “Mark to Market” method is not reflected when the company gains because regardless of the method that an entity use taxes must be paid in all income “gains” received the benefit thought is when the company has losses like in this case.
Due to the fact that “Mark to Market” is a change in accounting principle affects financial statements by providing with a more up to date financial statement information according to FABS because financial statements usually ignores the underlying economic. However, this change impacted UPS’s balance sheet because pension have to be value at the current market value and declare the loss in the income statement. References:
In January 27, 2012 UPS announces their decision to change their pension accounting method to, “Mark to Market” which was previously adopted in the fourth quarter of 2011. This actual change of the accounting system deals with the Internal Revenue code section 475. It’s moving from a cash basis capital gain or losses to a “mark to market” which is ordinary gains and ordinary losses better known as fair value of the market price. Using this method UPS recognizes its pension gain and losses on an annual basis instead of recognizing the impact over the years. This change of accounting method has not change in their pension’s participant’s benefits plans.
The benefit is that ordinary losses may be deducted in full against any type of tax return. UPS for instance, revised their past financial statements and recognized as if they occurred in the prior year and declared its losses which add up to the corporate income. They incurred in pretax losses of $4.831 billion, $827 million and $112 million can be able to carry back three years for tax immediately refund and then carry forward up to 20 years. The benefits of the “Mark to Market” method is not reflected when the company gains because regardless of the method that an entity use taxes must be paid in all income “gains” received the benefit thought is when the company has losses like in this case.
Due to the fact that “Mark to Market” is a change in accounting principle affects financial statements by providing with a more up to date financial statement information according to FABS because financial statements usually ignores the underlying economic. However, this change impacted UPS’s balance sheet because pension have to be value at the current market value and declare the loss in the income statement. References:
References: http://www.irs.gov/irb/2007-26_IRB/ar14.html http://www.investors.ups.com/phoenix.zhtml?c=62900&p=irol-newsArticle&ID=1653602&highlight=