MGMT 35- Pensions
MGMT 35- Pensions MGMT 351
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This 4 page Class Notes was uploaded by Emily McIlhattan on Wednesday February 25, 2015. The Class Notes belongs to MGMT 351 at Purdue University taught by Byong Ro in Winter2015. Since its upload, it has received 261 views. For similar materials see Intermediate Accounting II in Accounting at Purdue University.
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Date Created: 02/25/15
MGMT 351 Chapter 1 7 Pensions Current Lecture Talked about Exam 1 Accounting For Pensions 1 Introduction a PV periodic BPVOA n r PVStr i Annual Bene t is like an annuity or annuity due ii PVPBO balance in your savings account should be PV of future payments computed at time of retirement iii PBO pension bene t obligation 1 To fund company makes annual cash contributions can be made at end or beginningyear how your plan asset balance is determined 2 Private Pension Plans three parties a Company pension plan b Fund management company trustee c Employee retirees 3 Types of Pension Plans a Who offersmonitors pension plans i Government FICA social security ii Private plans Employer Plans De ned bene t or De ned Contribution a Or individuals traditional amp Roth IRAs b Whether employees contribute to the pension fund i Contributory plans employees as well as employer contribute ii Noncontributory plans only the employer contributes c Whether the pension plan has a bene t or contribution provision i De ned Bene t Plan ii De ned Contribution Plan 4 De ned Contribution Plan a The plan clearly de nes what amount of contribution the employer should make each year but not what bene ts the employees will receive after retirement i TotalBene t TB annual contribution service years ii Everything is from company perspective 5 De ned Bene t Plan we are focusing on this one a Plan de nes the amount of future bene ts employees will receive after retirement b TB annual credit highestterminal salary years c Annual credit of salary i Any shortfall in the pension funds in the future the company is liable for the shortfall good protection for the employees but costly to the employer ii Pension asset accumulated pension fund balance and liabilities on balance sheet company reports on behalf of you 6 Prior Service Cost PV of retirement bene ts for employee services rendered in the prior years before the plan is initially adopted or before the existing plan is amended it is also called unrecognized prior service cost 7 PBO PV of total retirement bene ts where the bene ts are computed based on the employees future highest or terminal salary 8 If PExp has 6 components lt Contribution overfunding employees want this prepaid pension expense 9 If PExp gt Contribution underfunding means there is an unpaid pension expense liability 1734 SC 52k Interest on p80 beg 59k Expec Return 96k lActual return Asset Loss Asset Gain during the year Amort of PrSC 36k Amort of net loss 24k Others if any 0 PExp 75k PExp 75k OCI 15k loss AOCI 60k Net Pens AL L 30k NetPens 100k Cash 100k Pensions Cont d M start plan retire pension work adopted 1 expire 1 I x x gt 2 Annual Ret Bene t B 35200 per yr 00252264000 Years Terminal Salary 3 PBO PV at end of age 61 beg of 62 338047 PV of future retirement bene ts as of retirement PBO PV at beg of age 40 62167 PV of future retirement ben discounted back 4 Annual Retirement Bene t B for the Yr 1 work 1600 00251 64000 Service Cost PV for Yr 1 computed at beg of age 62 15366 1600 PVOA 19 08 Service Cost PV for yr 1 computed at beg of age 40 2826 15366 PVS 22 08 5 At 12131 end of Year 1 end of Year 2 age 40 age 41 1 SC 3052 3296 2 Exp on PBObeg 0 244 3 Expec Ret on PAbeg 0 150 4 Amort of UPSC 0 0 5 Amort of UNGLoss 0 0 PExp 3052 3390 6 PExp 3052 3390 Cash 1500 1500 Net Pens AL L 1552 1890 HP 172 Prior Service Cost 1 B 02564k2 yrs 3200 per year 2 PV at beg age 40 3200PVOA 19 08PVS 22 08 5653 OCIoss 5653 a Net Pension AL 5653 liability increase 3 Amortization 565322 257yr Amort of PSC 257 AOCI 257
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