Pensions Monat Company has grown rapidly since its founding in 2004. To instill

Question

Pensions

Monat Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Monat is contemplating establishment of a defined benefit plan. Monat knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company's financial statements, particularly any gains or losses that develop in the plan. Monat has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan.

For each question, provide the FASB ASC citation number (topic and subtopic) that addresses the question and answer the question with the corresponding information from the FASB ASC citations.

(a) Identify the primary authoritative guidance that addresses the accounting for defined benefit plans.

(b) Briefly describe how pension gains and losses are accounted for.

(c) Explain the rationale behind the accounting method described in part (b).

(d) What is the related pension asset or liability that will show up on the balance sheet? When will each of these situations occur?

Explanation / Answer

Answer: (a) The primary authoritative guidance for accounting for deferred banefit plans is FASB ASC 960 (defined benefit pension plan accounting and reporting).

(b) According to FASB ASC 715-30-35:

35-21 Gains and Losses

Gains and losses that are not recognized immediately as a component of net periodic pension cost shall be recognized as increases or decreases in other comprehensive income as they arise. Accounting for plan terminations and curtailments and other circumstances in which recognition of gains and losses as a component of net periodic pension cost might not be delayed is addressed in the Settlements, Curtailments, and Terminations Subsection of this Section.

Answer:(c)

According to FASB ASC 715-30-35

35-22 Gains and Losses

Asset gains and losses are differences between the actual return on plan assets during a period and the expected return on plan assets for that period. Asset gains and losses include both changes reflected in the market-related value of plan assets and changes not yet reflected in the market-related value (that is, the difference between the fair value of assets and the market-related value). Gains or losses on transferable securities issued by the employer and included in plan assets are also included in asset gains and losses. Asset gains and losses not yet reflected in market-related value are not required to be amortized under paragraphs 715-30-35-24 through 35-25.

35-23 Gains and Losses

In other words, the expected return on plan assets generally will be different from the actual return on plan assets for the year. This Subtopic provides for recognition of that difference (a net gain or loss) in other comprehensive income in the period it arises. The amount recognized in other comprehensive income is also a component of net periodic pension cost for the current period.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.