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A friend has asked you the following questions about pension accounting. She is trying to decide about a job offer and wants to get a
A friend has asked you the following questions about pension accounting. She is trying to decide about a job offer and wants to get a better understanding about pension plans and in particular the pension plan for the public company she has the job offer from.
- The company has both a defined benefit plan and a defined contribution plan. Why would the company have both types of plans? What is the difference between the plans?
- The defined benefit pension plan has a surplus. What does this mean? How does this surplus impact the company?
- When I look at the balance sheet for the company I do not see the pensions plan assets and accrued benefit obligation. Why are they not on the Balance Sheet? What is on the Balance Sheet related to pensions?
- One thing that I am really confused about is the net actuarial gain or loss. The company has a net actuarial loss of $1,400,000. In the notes I see that the fair value of the pension plan assets is $4 million and the accrued benefit obligation is $4.4 million. The notes also say the average remaining service life employee group is 14 years. My questions are the following. First, how did the company end up with a net actuarial loss? Second, what are the choices, if any, in the accounting for the net actuarial gain or loss (illustrate with specific numbers)?
- My last question is how do I get a deferred tax asset related to the pension plan?
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