CFAI AM mock pension question 17 (on classifying cash flow as operating and financing) Wrong TPPC with formula

CFA Level II
#1

Hello, I wonder whether other people have problem with the answer of this question, I personally could not calculate the answer.

We all know if contribution > TPPC, the excess amount are treated as excess payment of principal of a bond and the after tax excess amount are removed from CFF and add to CFO. If contribution < TPPC, the after tax short fall is removed from CFO and add to CFF, like a borrowing activities.

So naturally you try to calculate the difference between the two.

TPPC = contribution - change in funded status

so TPPC = 3150 - [(46,697-65,528) - (40,900-58,700)] = 4,181

= 3150 - 4181 = -1,031 (under funded by 1,031)

However, official answer is:“3150 - 2562 = 588 and CFO increase” where does the 2562 comes from? from the table the account name “Net retirement expense for the year”.

So I know what they are testing and I know the formula of TPPC and calculate the difference accordingly and I am not rewarded for anything, because they simply want you to find 3150 and 2562 and do the difference? And why is the TPPC calculated from the formula incorrect? Got to love how hard work is not rewarded in this exam.

#2

i just took the morning section and that question was driving me crazy. i also got 1,031!!! where is the 2,562 coming from???

#3

could someone help answer this?

#4

This is a SOB of a question. The trick here is that they used the word economic perspective which basically changes everything. Rather than calculating (Contributions - TPPC), they are asking for the difference in real outflow terms i.e how much money could actually be spend to settle the above. So we calculate (Contributions - Periodic Pension Cost) instead of the above, because PPC is what could actually be expensed in the income statement and Contributions are the only actual cash outflow.

If you calculate Periodic Pension Cost as (current service cost + interest expense) you will get the 2562. It is also stated as net retirement expense for the year.

#5

Incredibly annoying question. Is the idea of looking at a pension plan in an economic perspective even in the curriculum?