University:
California State University, Northridge
Course:
ACCT 352 | Intermediate Financial Accounting III
Academic year:

2024
Views:

62

Pages:

12
Author:

Llethaw4zy

Pensions and Other Postretirement Benefits Part 3 Chapter 17 17-43 Comprehensive Income Comprehensive income is a more expansive view of income than traditional net income. 17-44 Comprehensive Income 17-45 Pension Spreadsheet 17-46 U. S. GAAP vs. IFRS Under IFRS we separately report (a) the service cost component (including past service cost) and (b) the net interest cost/income component in the income statement and (c) remeasurement gains and losses as other comprehensive income. Postretirement Benefits Other Than Pensions Net Cost of Benefits Estimated medical costs in each year of retirement Less: Equals: Retiree share of cost Medicare payments Estimated net cost of benefits Many companies also furnish other postretirement benefits to their retired employees. 17-47 17-48 Postretirement Benefit Obligation 1. Expected Postretirement Benefit Obligation (EPBO) – The actuary's estimate of the total postretirement benefits (at their discounted present value) expected to be received by plan participants. 2. Accumulated Postretirement Benefit Obligation (APBO) – The portion of the EPBO attributed to employee service to date. 17-49 Postretirement Benefit Obligation Assume the actuary estimates the net cost of providing health care benefits to Jessica Farrow during her retirement years to have a present value of $10,842 as of the end of 2011. This is the EPBO. If the benefits (and therefore the costs) relate to an estimated 35 years of service and 10 of those years have been completed, the APBO would be: 2011 x 2012 $10,842 EPBO 1.06 $11,493 EPBO x 10/ 35 = fraction attributed $3,098 APBO Assume the obligation increases by the 6%. x 11/ 35 = fraction attributed She now has worked 11 of her estimated 35 years $3,612 APBO 17-50 How the APBO Changed The two elements of the increase in 2012 can be separated as follows: 17-51 Attribution The process of assigning the cost of benefits to the years during which those benefits are assumed to be earned by employees. Accounting for Postretirement Benefit Plans Other Than Pensions Attribute a portion of the accumulated postretirement benefit obligation to each year as the service cost for that year. Measuring Service Cost 17-52 Appendix 17: Service Method of Allocating Prior Service Cost The allocation approach that reflects the declining service pattern of employees is called the service method. The method requires that the total number of service years for all employees be calculated. This calculation is usually done by the actuary. Assume Global Communications has 2,000 employees and the company’s actuary determined that the total number of service years of these employees is 30,000. We would calculate the following amortization fraction: 30,000 2,000 = 15 average service years 17-53