Pension Costs
FACT
In examining the costs of pension plans, Leah Hutcherson, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.
DIRECTION AND REQUIREMENTS
In this simulation, you will be asked various questions regarding basic pension plan terminology.
1. Discuss the theoretical justification for accrual recognition of pension costs.
Cash-basis accounting recognizes pension cost as being equal to the amount of cash paid by the employer to the pension fund in any period; pension funding serves as the basis for expense recognition under the cash basis. Accrual-basis accounting recognizes pension cost as it is incurred and attempts to recognize pension cost in the same period in which the company receives benefits from the services of its employees. Not infrequently, the amount which an employer must fund for pension purposes during a particular period is unrelated to the economic benefits derived from the pension plan in that period. Cash-basis accounting recognizes the amount funded as periodic pension cost and the amount funded may be discretionary and vary widely from year to year. Funding is a matter of financial management, based on working capital availability, tax considerations, and other matters unrelated to accounting considerations
2. Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.
b. Explain the following terms as they apply to accounting for pension plans. 1. Market-related asset value. 2. Projected benefit obligation. 3. Corridor benefit obligation.
c. Using the FARS research database, list the information that should be disclosed about a company's pension plans in its financial statements and its notes. Provide citations for your answer.
Definition of
In examining the costs of pension plans, Leah Hutcherson, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.
DIRECTION AND REQUIREMENTS
In this simulation, you will be asked various questions regarding basic pension plan terminology.
1. Discuss the theoretical justification for accrual recognition of pension costs.
Cash-basis accounting recognizes pension cost as being equal to the amount of cash paid by the employer to the pension fund in any period; pension funding serves as the basis for expense recognition under the cash basis. Accrual-basis accounting recognizes pension cost as it is incurred and attempts to recognize pension cost in the same period in which the company receives benefits from the services of its employees. Not infrequently, the amount which an employer must fund for pension purposes during a particular period is unrelated to the economic benefits derived from the pension plan in that period. Cash-basis accounting recognizes the amount funded as periodic pension cost and the amount funded may be discretionary and vary widely from year to year. Funding is a matter of financial management, based on working capital availability, tax considerations, and other matters unrelated to accounting considerations
2. Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.
b. Explain the following terms as they apply to accounting for pension plans. 1. Market-related asset value. 2. Projected benefit obligation. 3. Corridor benefit obligation.
c. Using the FARS research database, list the information that should be disclosed about a company's pension plans in its financial statements and its notes. Provide citations for your answer.
Definition of