COMPARATIVE ANALYSIS CASE
(a) Coca-Cola sponsors and/or contributes to pension plans covering
substantially all U.S. employees and certain employees in international
locations. Coca-Cola also sponsors nonqualified, unfunded defined
(b) Coca-Cola reported “net periodic benefit cost” of $249 million in 2011.
PepsiCo reported “pension expense” of $415 million in 2011 for U.S. plans.
(c) 2011 Funded Status ($millions) Pensions OPEB
COMPARATIVE ANALYSIS CASE (Continued)
Coca-Cola
Cash Flows
Pension Benefits
Expected benefit payments:
2012
$ 486
2013
501
2014
521
2015
537
2016
553
PepsiCo
Future Benefit Payments
Our estimated future benefit payments to beneficiaries are as follows:
2012
2013
2014
2015
2016
2017–2021
Pension
$560
$560
$560
$600
$645
$4,050
Retiree medical
$135
$135
$140
$145
$145
$ 730
FINANCIAL STATEMENT ANALYSIS CASE
(a) The components of postretirement expense are service cost, interest
(b) The accounting for defined-benefit plans and OPEBs is very similar.
For example, the measures of the obligation are similar and the com–
ponents of expense and their calculation are the same (with similar
smoothing mechanisms employed for both types of plans with respect to
gains and losses.) There are, however, a number of differences between
Postretirement Healthcare Benefits and Pensions:
Item
Pensions
Healthcare Benefits
Funding
Generally funded.
Generally NOT funded.
Benefit Payable
Monthly.
As needed and used.
Additionally, although healthcare benefits are generally covered by
the fiduciary and reporting standards for employee benefit funds under
ERISA, the stringent minimum vesting, participation, and funding
standards that apply to pensions do not apply to healthcare benefits.
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
Balance in PBO at 12/31/2015
Balance at 1/1/2015 $820.5
Amount of plan assets at 12/31/2015
$516.9
Corridor test and amortization of net gain/loss
Corridor limit: 10% times greater of $820.5 and $476.5 = $ 82.1
Excess of net G/L over corridor limit = $92.0 – $82.1 = 9.9
Amortization = $9.9 ÷ 15 = 0.7
Pension expense:
Interest cost = ($820.5 X 0.10) = $ 82.1
$ 82.6
Balance in pension liability
Projected benefit obligation $904.6
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Balance in Unamortized Net Gain or Loss at 12/31/2015
($138.1)
Journal entry:
Pension Expense ……………………………………………… 82.6
PENCOMP, INC.
Income Statement
for the year ended Dec. 31, 2015
Revenues:
Sales ……………………………………………………………….. $3,000.0
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
PENCOMP, INC.
Statement of Financial Position
at Dec. 31, 2013
Assets:
Cash ……………………………………………………………………. $ 368.0
Liabilities:
Note payable ………………………………………………………… $1,000.0
Pension liability ……………………………………………………. 387.7
Total Liabilities ………………………………………… 1,387.7
Equity:
Common stock …………………………………………………….. $2,000.0
Note payable = no change from previous statement of financial position.
Pension liability = $387.7 per above analysis
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Analysis
ROE = $37.4 ÷ $2,460.3 = 0.0152 or 1.52%.
In this example, the unexpected return on plan assets ‘skipped’ the income
statement and went to other comprehensive income. Had this item been
included in income, ROE would have been = ($37.4 –$46.8) ÷ $2,460.3 = –
Principles
The effects of plan amendments and actuarial gains and losses in a given
PROFESSIONAL RESEARCH
(a) According to FASB ASC 715–30–35:
35–22 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
35–24 As a minimum, amortization of a net gain or loss included in
accumulated other comprehensive income (excluding asset
gains and losses not yet reflected in market-related value) shall
be included as a component of net pension cost for a year if,
PROFESSIONAL RESEARCH (Continued)
(b) According to FASB ASC 715-30–35:
Gains and Losses
35–18 As established in the definition of the term, a gain or loss
results from a change in the value of either the projected
benefit obligation or the plan assets resulting from experience
35–19 Because gains and losses may reflect refinements in estimates
as well as real changes in economic values and because some
(c) According to FASB ASC 715-30–25:
25-1 If the projected benefit obligation exceeds the fair value of plan
assets, the employer shall recognize in its statement of
PROFESSIONAL SIMULATION
Note: This assignment is available on the Kieso website.
Measurement
(a)
A
B
C
D
E
F
G
H
I
J
K
L
M
N
5
6
General Journal Entries
Memo Record
7
Items
Annual
Pension
Expense
Cash
OCI—Prior
Service Cost
OCI—
Gain/Loss
Pension
Asset/Liability
Projected
Benefit
Obligation
Plan assets
8
9
Balance, Jan. 1, 2014
(145,000)
(625,000)
480,000
20–90 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
Service cost
Interest cost
Actual /Expected return
(52,000)
(5,000)
57,000
Amortization of PSC
(19,000)
Benefits
(85,000)
Liability increase
76,000
Journal entry for 2014
113,250
(99,000)
(19,000)
71,000
Accumulated OCI, Dec. 31, 2013
Balance, Dec. 31, 2014
71,000
(211,250)
(762,250)
551,000
PROFESSIONAL SIMULATION (Continued)
(b) Simply change the formula in cell B11 to multiply by .07; change the
formula in cell B12 to multiply .10 times (N9* – 1).
Journal Entry
Other Comprehensive Income (PSC) ………………… 19,000
Disclosure
Financial Statements
Income Statement
Pension expense …………………………………………….. $113,250
IFRS CONCEPTS AND APPLICATION
IFRS20-1
Net interest is defined as the amount that accrues by multiplying the net
benefit obligation by the discount rate (using defined benefit obligation and
Because payment of the pension obligation is deferred, companies record
the pension liability on a discounted basis. As a result, the liability accrues
interest over the life of the employee (passage of time), which is essentially
interest expense. Similarly, companies earn a return on its plan assets.
IFRS20-2
The service cost component of pension expense is determined as the
IFRS20-3
Past service cost is the cost of retroactive benefits (either positive or
negative) granted in a plan amendment or initiation of a pension plan. Also
IFRS20-4
IFRS20-5
Joshua Co. would report a pension asset of $10,000 ($345,000 – $335,000)
and in equity, accumulated other comprehensive gain of $8,300.
IFRS20-6
Current Service cost ……………………………………………….. $26,000
Statement of Comprehensive Income
Revenues $125,000
Expenses 85,000
20–94 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
IFRS20-8
DOREEN CORP.
Pension Worksheet—2014
General Journal Entries Memo Record
Items
Annual
Pension
Expense
Cash
Pension
Asset/
Liability
Projected
Benefit
Obligation
Plan
Assets
Balance, Dec. 31, 2013
13,800 Cr.
560,000 Cr.
546,200 Dr.
Prior service cost
120,000 Dr.
120,000 Cr.
Balance, Jan. 1, 2014
680,000 Cr.
546,200 Dr.
Service cost
58,000 Dr.
61,200 Dr.
Interest revenue**
49,158 Cr.
Contributions
Benefits
Journal entry for 2014
190,042 Dr.
Balance, Dec. 31, 2014
759,200 Cr.
620,358 Dr.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 20–95
IFRS20-9
(a) BUHL CORP
Pension Worksheet
General Journal Entries
Memo Record
Items
Annual
Pension
Expense
Cash
OCI—
Gain/Loss
Pension
Asset/
Liability
Defined
Benefit
Obligation
Plan Assets
Balance, Jan. 1, 2014
120,000 Cr.
600,000 Cr.
480,000 Dr.
Service cost
90,000 Dr.
90,000 Cr.
Interest expense*
36,000 Dr.
36,000 Cr.
(b) Journal Entry
Pension Expense………………………………………………. 97,200
Other Comprehensive Income (G/L)…………………… 49,800
Interest revenue**
28,800 Cr.
Liability increase
76,000 Cr.
Contributions
Benefits
85,000 Dr.
Journal entry for 2014
97,200 Dr.
Accumulated OCI, Dec. 31, 2013
Balance, December 31, 2014
168,000 Cr.
717,000 Cr.
549,000 Dr.
IFRS20-10
(a) Actual Return = (Ending – Beginning) – (Contributions – Benefits)
Fair value of plan assets,
(b) Computation of pension liability gains and losses and pension asset gains and losses.
Difference between 12/31/14 actuarially computed DBO and 12/31/14 recorded
projected benefit obligation (DBO):
Difference between actual fair value of plan assets and
12/31/14 actual fair value
of plan assets …………………………………. 2,620
The amount recorded in other comprehensive income is The asset gain and
liability loss:
Asset gain ………………………………………………………………………… $ 250
Liability loss ……………………………………………………………………… 350
IFRS20-11 Accounting Research
(a) According to IAS 19, (pars 127–130) 127 Remeasurements of the net
defined benefit liability (asset) comprise: (a) actuarial gains and losses (see
128 Actuarial gains and losses result from increases or decreases in the
present value of the defined benefit obligation because of changes in
actuarial assumptions and experience adjustments. Causes of actuarial
gains and losses include, for example: (a) unexpectedly high or low rates
of employee turnover, early retirement or mortality or of increases in
salaries, benefits (if the formal or constructive terms of a plan provide for
inflationary benefit increases) or medical costs;
130 In determining the return on plan assets, an entity deducts the costs of
managing the plan assets and any tax payable by the plan itself, other than
tax included in the actuarial assumptions used to measure the defined
benefit obligation (paragraph 76). Other administration costs are not
deducted from the return on plan assets.
IFRS20-11 (Continued)
BC90 The Board confirmed the proposal made in the 2010 ED that an entity
should recognize remeasurements in other comprehensive income. The
BC95 However, most respondents to the 2010 ED expressed the view that it
would be inappropriate to recognise in profit or loss short-term
fluctuations in an item that is long-term in nature. The Board concluded
that in the light of the improved presentation of items of other
comprehensive income in its amendment to IAS 1 issued in June 2011, the
most informative way to disaggregate the components of defined benefit
cost with different predictive values is to recognise the remeasurement
component in other comprehensive income.
With respect to recycling these amounts into net income in subsequent
periods:
(a) there is no consistent policy on reclassification to profit or loss in
IFRSs, and it would have been premature to address this matter in the
context of the amendments made to IAS 19 in 2011.
IFRS20-11 (Continued)
64 When an entity has a surplus in a defined benefit plan, it shall measure
65 A net defined benefit asset may arise where a defined benefit plan has
been overfunded or where actuarial gains have arisen. An entity recognises
a net defined benefit asset in such cases because:
(a) the entity controls a resource, which is the ability to use the surplus to
generate future benefits;
IFRS20–12
(a) M&S provides pension arrangements for the benefit of its UK
employees through the Marks & Spencer UK Pension Scheme. This
has a defined benefit section, which was closed to new entrants with
effect from 1 April 2002, and a defined contribution section which has
IFRS20-12 (Continued)
(d) M&S’s Analysis of assets and expected rates of return portion of its
pension footnote details the major categories of assets, which are