If Employer Contribution > Total Periodic Pension Cost , the Operating Cash Flows can be adjusted upward by the difference if you take the economic perspective. This makes sense to me.
However, if it’s the other way around, namely Employer Contribution < Total Periodic Pension Cost , is there some kind of similar adjustment that should/could be made?
When Employer Contribution > Total Periodic Pension Cost , CFO inflow adjusted up, and CFF inflow is adjusted down.
When Employer Contribution < Total Periodic Pension Cost , CFO inflow is adjusted down, and CFF inflow is adjusted up
Two other issues: The problem may state CFO outflow or CFF outflow rather than inflow… If you keep the same rules, you’ll have it opposite. ANd don’t forget this is after tax.
When contribution > TPPC, it’s like paying off debt. So, you decrease CFF by the after tax difference and increase CFO by the after tax difference.
When TPPC > contribution, it’s like you’re borrowing. Opposite of above applies.