Imagine you are an accounting manager and are in the process of implementing a p
ID: 2743911 • Letter: I
Question
Imagine you are an accounting manager and are in the process of implementing a pension plan for your organization. Prepare a brief report to management on the various types of pension plans. In your report, compare and contrast a contributory pension plan and a noncontributory pension plan, and discuss the theoretical justification for the accrual recognition of pension cost. Include one (1) recommendation to management on which type of pension plan would be most beneficial to the company.
Discuss the type of information that must be included in notes to financial statements, and explain why the information is relevant to financial statement users. Imagine you are an employee of a company and want to know if the pension plan will provide you with the necessary benefits upon retirement. Determine the type of information you would look for in the notes on the pension funds, and ascertain the way in which the information will provide assurance that the company will properly fund your pension.
Explanation / Answer
There are four types of retirement plans:
Contributory and non-contributory pension plan:
Contribution pension plan: Contribution pension plan must make contributions. In this method, employer also match contribution amount to increase the value of the pension plan.
Non-contribution pension plan: Non-contribution plan is estimated by a set formula which considers account salary and years of participation in the plan and age at retirement. This plan does not require an employee contribution.
Pension plans can be disclosed in financial statement as follows:
Time Warner Cable (TWC) pension plan:
The pension plan benefit to majority of the employees. It is based on the formulas employee’s years of service and compensation during their employment. The pension expense is as follows:
$ 205 million – 2013
$ 183 million - 2012
$ 123 million – 2011
The pension plan is based on the following assumptions:
Walt Disney – Pension and post-retirement medical plan:
It is based on the actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement and it is calculated on annual basis. It is also include healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.
21 Century Fox-Pension and other post-retirement benefits and unrecognized tax benefits:
The contribution of pension fund is based on voluntarily funding to improve status of the plans. Future plan contributions are dependent upon actual plan asset returns, interest rates and statutory requirements.
Every company is making pension plan which is based on the certain assumptions like TWC calculated pension on employee’s years of service and compensation during their employment. In Walt Disney, Pension plan is included with post retirement plan and it is based on actuarial basis which is done annually. In 21st Century, it is based on actual plan assets returns, interest rates and statutory requirements.
In consolidation statement, inter unit sales and purchase to be eliminated because it will give double impact in the financial accounts. After consolidation, both units are treated as one. Therefore, inter unit sales are to be considered as one.
The main benefit is it provides true picture of sales turnover of the company but negative impact it is considered in purchase price which undervalue the sales price of one unit to another unit.
Generally accepted accounting standards are silent as to the appropriate treatment of unrealized profit on assets that result from sales between companies prior to affiliation (preaffiliation profit).
The question is whether preaffiliation profit should be eliminated in consolidation. In our opinion, workpaper entries eliminating preaffliation profit are inappropriate.
To eliminate intercompany sales:
All Methods
Sales X
Purchases (Cost of Sales) X
To eliminate intercompany profit in ending inventory:
All Methods
Ending Inventory (Cost of Sales) X
Inventory (Balance Sheet) X
To recognize intercompany profit in beginning inventory realized during the year:
Cost or Partial Equity Methods
Beg. Retained Earnings—Parent X
NCI in Equity X
Cost of Sales (beg. inventory) X
Complete Equity Method
Investment in S Company X
NCI in Equity X
Cost of Sales (beg. inventory) X
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