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Unformatted text preview: C H A P T E R 20 ACCOUNTING FOR PENSIONS AND POSTRETIREMENT BENEFITS This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. USING A PENSION WORKSHEET We will now illustrate the basic computation of pension expense using the first three components: (1) service cost, (2) interest on the liability, and (3) actual return on plan assets. We discuss the other pension-expense components (amortization of past service cost, and gains and losses) in later sections. Companies often use a worksheet to record pension-related information. As its name suggests, the worksheet is a working tool. A worksheet is not a permanent ac- counting record: It is neither a journal nor part of the general ledger. The worksheet is merely a device to make it easier to prepare entries and the financial statements. 1 Illustration 20-1 shows the format of the pension worksheet . Annual Pension Expense Cash Items Pension Asset/ Liability Defined Benefit Obligation Plan Assets General Journal Entries Memo Record Pension Worksheet ILLUSTRATION 20-1 Basic Format of Pension Worksheet The General Journal Entries columns of the worksheet (near the left side) determine the entries to record in the formal general ledger accounts. The Memo Record columns (on the right side) maintain balances in the defined benefit obligation and the plan assets. The difference between the defined benefit obligation and the fair value of the plan assets is the pension asset/liability , which is shown in the statement of financial position. If the defined benefit obligation is greater than the plan assets, a pension liability occurs. If the defined benefit obligation is less than the plan assets, a pension asset occurs. On the first line of the worksheet, a company enters the beginning balances (if any). It then records subsequent transactions and events related to the pension plan using debits and credits, using both sets of columns as if they were one. For each trans- action or event, the debits must equal the credits. The ending balance in the Pension Asset/Liability column should equal the net balance in the memo record. 2011 Entries and Worksheet To illustrate the use of a worksheet and how it helps in accounting for a pension plan, assume that on January 1, 2011, Zarle Company provides the following information related to its pension plan for the year 2011....
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This note was uploaded on 02/02/2012 for the course ACCO 3350 taught by Professor Alvarez during the Spring '11 term at American International.
- Spring '11