Professional Documents
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CHAPTER 20
ACCOUNTING FOR PENSIONS AND
POSTRETIREMENT BENEFITS
Intermediate Accounting
IFRS Edition
Kieso, Weygandt, and Warfield
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Learning
Learning Objectives
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
Accounting for
for Pensions
Pensions and
and Postretirement
Postretirement Benefits
Benefits
Reporting Pension
Nature of Pension Accounting for Using a Pension
Plans in Financial
Plans Pensions Worksheet
Statements
Pension
PensionPlan
Plan
Administrator
Administrator
Employer
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
Nature of
of Pension
Pension Plans
Plans
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LO 1 Distinguish between accounting for the employer’s
pension plan and accounting for the pension fund.
Nature
Nature of
of Pension
Pension Plans
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 +
5. Gain or Loss +-
Illustration 20-10
E20-7
($40,920) liability
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Using
Using aa Pension
Pension Work
Work Sheet
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.
Illustration 20-19
Illustration 20-20
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Gains
Gains and
and Losses
Losses
Illustration: If Wentworth Company decides to report the loss in
other comprehensive income.
Illustration 20-21
Illustration 20-19
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Using
Using aa Pension
Pension Work
Work Sheet
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.
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Using
Using aa Pension
Pension Work
Work Sheet
Sheet
P20-2
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Using
Using aa Pension
Pension Work
Work Sheet
Sheet
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Using
Using aa Pension
Pension Work
Work Sheet
Sheet
P20-2
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($49,700) liability
Using
Using aa Pension
Pension Work
Work Sheet
Sheet
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Using
Using aa Pension
Pension Work
Work Sheet
Sheet
P20-2
($85,130) liability
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Using
Using aa Pension
Pension Work
Work Sheet
Sheet
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Reporting
Reporting Pension
Pension Plans
Plans in
in Financial
Financial Statements
Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting
Reporting Pension
Pension Plans
Plans in
in Financial
Financial Statements
Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting
Reporting Pension
Pension Plans
Plans in
in Financial
Financial Statements
Statements
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LO 9 Describe the requirements for reporting
pension plans in financial statements.
Reporting
Reporting Pension
Pension Plans
Plans in
in Financial
Financial Statements
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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Copyright
Copyright
Copyright © 2011 John Wiley & Sons, Inc. All rights reserved.
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