CFAI Mock Afternoon Q36 should, economic

IAmNeil

The answer to this questions specifies that the adjustment to CFO is the pension expense minus Contributions. But should it not be Economic Pension Expense? The answer uses the Pension Expense (not economic pension expense) and subtracts contributions from it.
Anyone?

luda002

no, this is a cash flow statement adjustment. not an evaluation of the economic expense in the reporting period itself. it's about the actual cash costs.

RMontgomery

I don't think i understand completely. The answer refers to page 230-231 in the CFAI Book 2, which does talk about CFO adjustment as Economic Pension Expense - Company Contributions. Can someone throw some light?

zephyranalyst

Can't help you, but for what it's worth, I had the same question.

onelife1

This question is about knowing how pension accounting affects the cash flow statement. Only the pension expense (a non-cash charge/ benefit) and the employer contributions (cash charge) will be added/ subtracted from NI when calculating CFO. In this particular case, because the pension expense is negative, it is actually a benefit to the company and is subtracted from NI. So the total effect on CFO is to subtract a total of 231.4 (157.4 pension expense + 74 employer contributions) because they are both cash outflows... hope that was somewhat helpful.

SpyAli

It's a trick question - it wants you to mess up when it uses the term "cash from operations" because you see the words cash flow and immediately think of economic pension expense.

Actual cash flow is calculated by using economic pension expense but this problem is asking us to provide them with the effect on net income which would be calculated by using the smoothed pension expense.

Trick f*cking question. Bastards



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 12:11PM by verse214.

huangxiaoxie

Wait, so starting with CFO you subtract 231 to arrive at NI?

Or the other way around? This question has my mind spinning.