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How is pension expense c alc ulat ed?
How are pension obligat ions disc losed in t he f inanc ial st at ement s?
T his module inc ludes t erminology t hat is probably new t o you. Ensure t hat you
f amiliarize yourself wit h t he f ollowing t erms and know how t o ac c ount f or eac h:
c orridor, c urrent year servic e c ost s, past servic e c ost s, and ac t uarial gains and
losses. Y ou should also be able t o det ail t he key c harac t erist ic s of def ined
benef it plans and def ined c ont ribut ion plans.
F ile: Topic 2: Accounting for Pensions
Mo dule 6: Pe ns io ns a nd Othe r ... T opic 2: Accounting for Pensions
A pension plan provides c ash payment s on a regular basis t o employees af t er t hey ret ire.
Def ined c ont ribut ion and def ined benef it plans are t he most c ommon t ypes of pension plans.
A defined contribution pension plan is one in whic h t he employer’s c ont ribut ion is a set
amount , usually a perc ent age of earnings. Benef it s payable t o t he employee at ret irement are
governed by t he balanc e in t he individual’s plan at ret irement dat e. T his balanc e is made up of
t he employer’s c ont ribut ions, t he employee’s c ont ribut ions (if any), and monies earned f rom
invest ing t hese f unds over t he lif e of t he plan.
T he risk of t he def ined c ont ribut ion plan lies wit h t he employee. T he employer agrees t o
c ont ribut e a f ixed amount eac h period. T he end balanc e available t o t he employee is largely
dependent on t he rat e of ret urn earned on t he invest ed asset s.
https://blackboar d.tr u.ca/webct/ur w/lc5122001.tp0/cobaltM ainFr ame.dowebct 3/7 10/14/13 Blackboar d Lear ning System Ac c ount ing f or def ined c ont ribut ion pension plans is simple. T he employer debit s pension
expense f or t he amount of money t o be remit t ed t o t he t rust ee: T he balanc e of t his module is devot ed t o t he more c omplex issue of ac c ount ing f or def ined
benef it plans.
A defined benefit plan spec if ies t he benef it t hat t he employee will rec eive at t he t ime...
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- Spring '13