the CF adjustment is just the difference between: Contribution and Total periodic pension cost.
If TPPC < contribution then adjustment from CFF to CFO, otherwise other way around
Now in the exercise I tried to calculate for pension plan A (as said) the TPPC = Contributions - Delta Funded Status = Delta PBO + benefits - actual return on plan assets but:
both formula gives me another result (did thousand of times in Schweser mocks and always worked well) and moreover, not one corresponds to the TPPC which according to the Mock is in the exhibit 4 under “Net retirement expense for the year”.
I don’t know why the formulas for TPPC doesn’t give me 1) the same result, 2) the same result as the “net retirement expense for the year”
what the hell??? as I said on schweser mock I use both and never had problems, can’t figure it out why here doesn’t works and why the TPPC are the net reritement expense for the year… should be the same as TPPC
According to the answer you just have to take the figure from Exhibit 4 “net retirement expense for the year” - a definition which I have never heared. And no calculation is needed. And I have no idea why the calculation taught by both Schweser and the Curriculum does not work.
This stuff about the excess contribution and how tppc has to be calculated is (was) crystal clear. Until the mock.
I’m not an accountant and in my country there are no defined benefit plans so I have no idea how this in real life works, but the curriculum taught us two ways to calculate tppc and these do not work in this vignette. How?
it’s current service cost + (interest cost - interest income of assets) [net interest expense/income] which is pretty much pension cost under IFRS is it not?
I did this as well and came up with 4181 as well. Atlast I picked the answer ’ unchanged’ because it was coming up as borrowing as per $4181 so thought of it as no change in CFO. It was confusing since we learnt it in a different way in curriculum
Even I found this question confusing but I think difference here is that we are doing calculation for pension fund A which is essentially your defined contribution pension plan not the benefit plan. TPPC calculation which we do is for befit plan.
The mock assumes that the adjustment is only done on the difference between contributions and pension expense REPORTED IN THE INCOME STATEMENT. Schweser states to use the difference between total periodic pension cost and the contributions.
Under IFRS, the amount reported in income statement for this case will be current service cost (1850) + interest cost (2348) - interest income on assets utilization the discount rate (1636) = 2562.
FYI: Alternatively it is just the current service cost + net interest expense. Same thing.
Contributions are 3150. Therefore 3150-2562 = 588
NOW, I am unsure whether it is TPPC or expense reported in the income statement that we compare the contributions too. The latter makes more sense considering OCF starts from Net income.
Schweser clearly states the difference between TPPC and contributions.
Overcontributing means an increase in CFO
Undercontributing means a decrease in CFO.
So basically we’re saying that Schweser is wrong and misleading? Gives me a lot of confidence going forward. Yesterday I tried those Ethics Topic Tests on the CFAI website, and those were brutal.
And now this question has put me off completely as well!
I have had 75%+ scores on Schweser Mocks (done more than 5 complete exams), but I am losing faith to pass this exam in an incredible rate.
Are you sure schweser is wrong in saying its Contributions - TPPC and not cfai thats wrong in saying its Contributions - PPC?
I’ve seen cfai be wrong just as much as schweser for level2, and from what i’ve heard cfai really messed up pensions a few years ago in the curriculum with explaining TPPC vs PPC… so this might just be an old question?