CA 20.6
While Selma may be correct in assuming that the termination of non-vested employees would decrease
its pension-related liabilities and associated expenses, she is callous to suggest that firing employees is
FINANCIAL REPORTING PROBLEM
(a) M&S has funded pension plans (defined–benefit) for UK employees
and the majority of employees oversees. This plan applies to
(c) Impact on 2016 financial statements: credit to pension expense
decreased net income by £86.7 million; a net retirement benefit asset of
£824.1 million for Marks & Spencer UK retirement benefit, and a
remeasurement of retirement benefit schemes of £346.2 million less tax
effects of £45.6 million recognized in comprehensive income.
(d) M&S’s Analysis of assets portion of its pension footnote details the
major categories of assets, which are debt investments, Scottish
COMPARATIVE ANALYSIS CASE
(a) adidas has defined-benefit plans comprising a variety of post–
employment benefit arrangements (including defined contribution
plans).
Puma has both defined-benefit and defined contribution plans.
(d) Relevant rates used to compute pension information:
adidas
Discount rate
2.8%
Expected pension increases
1.7%
Expected rate of salary increase
3.1%
Puma
Future salary increases
Future pension increases
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Journal entry:
PENCOMP, AG
Income Statement for the year ended Dec. 31, 2019
Revenues:
Sales ……………………………………………………………….. €3,000.00
Expenses:
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
PENCOMP, AG
Statement of Financial Position
at December 31, 2019
Assets:
Plant and equipment …………………………..………………… €2,000.00
Accumulated depreciation ……………………………………. (320.00)
€1,680.00
Equity:
Share capital ………………………………………………………… €2,000.00
Retained earnings ………………………………………………… 752.55
Total Equity ……………………………………………… €2,752.55
Liabilities:
Note payable = no change from previous statement of financial position.
Share capital = no change from previous statement of financial position.
Retained earnings = €896.0 + €67.80 – €200 – €11.25 = €752.55
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
ANALYSIS
ROE = €67.80 ÷ €2,752.55 = 0.0246 or 2.46%.
In this example, only the loss on plan assets ‘skipped’ the income
statement and went to other comprehensive income. Had this item been
PRINCIPLES
The effects of plan amendments and asset/liability gains and losses in a
given year can be thought of as fairly transitory items with respect to
RESEARCH CASE
(a) According to IAS 19, (pars 127-130) 127 Remeasurements of the net defined benefit liability
(asset) comprise: (a) actuarial gains and losses (see paragraphs 128 and 129); (b) the return on
plan assets (see paragraph 130), excluding amounts included in net interest on the net defined
benefit liability (asset) (see paragraph 125); and (c) any change in the effect of the asset ceiling,
excluding amounts included in net interest on the net defined benefit liability (asset) (see
paragraph 126).
According to par. 122: Remeasurements of the net defined benefit liability (asset) recognised in
other comprehensive income shall not be reclassified to profit or loss in a subsequent period.
However, the entity may transfer those amounts recognised in other comprehensive income
within equity.
(b) The IASB made the following points in it basis for conclusion for amendments to IAS 19 (pars
BC99 – BC99):
BC90 The Board confirmed the proposal made in the 2010 ED that an entity should recognise
remeasurements in other comprehensive income. The Board acknowledged that the Conceptual
CASE RESEARCH (Continued)
With respect to recycling these amounts into net income in subsequent periods:
BC99 Both before and after the amendments made in 2011, IAS 19 prohibits subsequent
reclassification of remeasurements from other comprehensive income to profit or loss. The
Board prohibited such reclassification because:
(c) According to IAS 19 (pars. 63-65),
63 An entity shall recognise the net defined benefit liability (asset) in the statement of financial
position.
64 When an entity has a surplus in a defined benefit plan, it shall measure the net defined
benefit asset at the lower of: (a) the surplus in the defined benefit plan; and (b) the asset ceiling,
determined using the discount rate specified in paragraph 83.
GAAP CONCEPTS AND APPLICATION
GAAP 20.1.The underlying concepts for the accounting for postretirement
benefits are similar between U.S. GAAP and IFRS—both U.S. GAAP
and IFRS view pensions and other postretirement benefits as forms
of deferred compensation. Other similarities include: (1) IFRS and
U.S. GAAP separate pension plans into defined contribution plans
GAAP 20.2. The IASB and the FASB have worked collaboratively on a
postretirement benefit project. The recent amendments issued by
the IASB moves IFRS closer to U.S. GAAP with respect to
GAAP 20.3.
(a) Asset and liability gains and losses are amortized as are past service
costs under U.S. GAAP. This is shown as “Amortization” by Zarle.
Under IFRS, asset gains and losses are reported as part of
comprehensive income and past service costs are recognized as part
of pension expense as incurred.
(b) Under IFRS, no amortization of past service costs results in higher
pension expense with respect to prior (past) service costs in the year
past service costs are granted and lower expense in other years.
Depending on whether the company has unrealized gains or losses,
these are not recorded in net income, which reduces the volatility of