Reading 22: Employee Compensation: Post-Employment and Share- 2010, benefit, reports, center, style

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Session 6: Financial Reporting and Analysis: Post-Employment and
Share-Based Compensation and Multinational Operations
Reading 22: Employee Compensation: Post-Employment and Share-Based

LOS a: Discuss the types of post-employment benefit plans and the implications for financial reports.

 

 

 

The financial statements of Pace Industries issued over the past five years show a progressively increasing net difference between the value of its pension fund and the projected future pension liability on the balance sheet. Pace most likely offers which of the following types of pension plans to its employees?

A) A 401(k) plan.

B) A defined contribution plan.

C) A defined benefit plan.

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A company with a defined benefit plan will fund a portfolio structured to fulfill future pension obligations. The difference between the current value of the assets and the projected future liability is shown as a net amount on the balance sheet.

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Prime Bank promises each of its full-time employees that it will pay them $100 a month after retirement for every completed year of service. This type of pension plan is called a:

A) non-pay-related defined contribution plan.

B) non-pay-related defined benefit plan.

C) pay-related defined benefit plan.

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The promised benefit is not related to either an employee’s current or future salary, and the future benefit has been defined upfront.

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When considering the major differences between a defined contribution and a defined benefit pension plan, which of the following statements is most accurate?

A) Among the different types of pension plans, accounting for a pay-related defined benefit plan is the most complicated because of the required actuarial assumptions.

B) Accounting for a defined contribution pension plan is the most complicated because of the many investment options available to the employees.

C) A company with a defined contribution plan will report on its balance sheet the net difference between the value of the pension fund assets and the value of the pension liability.

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Three actuarial assumptions (discount rate, expected increase in employee compensation and the expected return on plan assets) must be estimated to project the value of the corporation’s pension liability today. Subtle changes to any of the three assumptions can drastically change the estimated liability.

luqian55

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niujiazju

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