Pension accounting: reclassifying CFO to CFF

CFA Level II
#1

Hi guys,

Im not sure if I have the relationship backwards, but can anyone confirm if this logic correct (or if it should be the other way around with regards to reclassifying CFF & CFO)?

-if contributions > TPPC: reduction in overall pension obligation (reclassify CFF to CFO)

-if contributions < TPPC: source of funding (reclassify CFO to CFF)

In #7 in practice exams of the curriculum, periodic pension cost was 483, while employer contributions was 693. The correct answer was to reclassify the 210 difference to CFF rather than CFO.

So in my understanding, the relationship should be; 693 contributions > 483 TPPC: reclassify CFO to CFF?

thanks!

#2

Yes, EC > TPPC = CFF Outflow.

#3

The big point to understand is over contributions to a liability count as principal payments and under contributions count as interest payments.

#4

Actually, undercontributions are considered borrowing (principal), not as interest payments.

#5

Sorry. Thank you

#6

No need to apologize.

You’re quite welcome.