Reading 24: Employee Compensation: Post-Employment and Share- benefit, measures, liability, class

土豆妮

Session 6: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share-Based Compensation, and Multinational Operations
Reading 24: Employee Compensation: Post-Employment and Share-Based

LOS b: Explain the measures of a defined benefit pension plan’s liability (i.e., defined benefit obligation and projected benefit obligation).

 

 

Neptune Corporation (Neptune) is a U.S. company located in Detroit, Michigan. Neptune supplies exhaust emission systems to manufacturers of passenger cars and light duty trucks. In January 2006, Neptune formed a wholly owned subsidiary, Continental Systems GmbH (Continental), to supply automotive manufacturers located throughout Europe. Continental is located in Stuttgart, Germany.

Continental’s most recent financial statements, denominated in euros, are provided in Exhibit 1.

Exhibit 1: Continental Systems GmbH
Income statement
Year ended December 31
(in thousands)	2008
Sales revenue

收藏 分享

土豆妮

An analyst views the assumptions made by a company regarding its pension liabilities as unrealistic, and thinks the discount rate and expected rate of return should both be increased. The most likely effect of increasing the discount rate and expected rate of return on the vested benefit obligation (VBO) is:

Discount rate

Expected rate of return

A) Increase No effect

B) No effect Decrease

C) Decrease No effect

---

The VBO will decrease because a higher discount rate will cause the present value of the future obligations to decline. There will be no effect from changing the expected rate of return because expected return relates to the pension funding and expense, not to the size of the obligation.

土豆妮

The vested benefit obligation is defined as the:

A) amount of the accumulated benefit obligation (ABO) to which the employee is entitled based on the company’s vesting schedule.

B) actuarial present value of all future pension benefits earned to date and based on current salary levels, ignoring future increases.

C) actuarial present value of all future pension benefits earned to date based on expected future salary increases.

---

The vested benefit obligation is defined as the amount of the accumulated benefit obligation (ABO) to which the employee is entitled based on the company’s vesting schedule.

土豆妮

The accumulated benefit obligation is defined as the:

A) actuarial present value of all future pension benefits earned to date based on expected future salary increases.

B) increase in the projected benefit obligation (PBO) due to the passage of time.

C) actuarial present value of all future pension benefits earned to date and based on current salary levels.

---

The accumulated benefit obligation is defined as the actuarial present value of all future pension benefits earned to date and based on current salary levels, ignoring future increases.

土豆妮

Which of the following is NOT a measure of pension plan liabilities for a defined benefit pension plan?

A) Deferred benefit obligation.

B) Vested benefit obligation.

C) Projected benefit obligation.

---

Deferred benefit obligation is not one of the measures of pension plan liabilities for a defined benefit pension plan.

土豆妮

The projected benefit obligation (PBO) is defined as the:

A) actuarial future value of all post-retirement healthcare benefits earned to date.

B) actuarial present value of all future pension benefits earned to date and based on current salary levels.

C) actuarial present value of all future pension benefits earned to date based on expected future salary increases.

---

The projected benefit obligation (PBO) is defined as the actuarial present value of all future pension benefits earned to date based on expected future salary increases.

土豆妮

The actuarial present value of all future pension benefits earned to date, based on expected future salary increases, is called the:

A) projected benefit obligation (PBO).

B) vested benefit obligation.

C) accumulated benefit obligation.

---

The PBO is the actuarial present value (at an assumed discount rate) of all future pension benefits earned to date, based on expected future salary increases. It measures the value of the obligation, assuming the firm is a going concern and that the employees will continue to work for the firm until they retire.