ABC Company pension plan on December 31, 2005 is underfunded by 85 million. Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million. What is the amount of the pension liability on ABC’s balance sheet on dec. 31, 2005, assuming the financials were prepared according to U.S. GAAP under the: Old Pension Standards? New Pension Standards? A) 70, 70 B) 70,85 C) 100,70 D) 100, 85
D
wow can’t remember anything but my guess goes to D
D… new standards = funded status = 85 old standards = funded status + adjustment = 85 + 15 = 100
I think D is right as well… even though the book went with B
D
It is B) I remember doing this Q a few weeks back and fooked it up, even though I made the proper adjustments. It’s a NEGATIVE (-) 85 were starting with cuz UNDERFUNDED, not positive. Be careful with little deets like this. It works this way: -85 + 27 - 12 = -70 Obviously, it would just appear under liabilities on BS in old way (they didn’t ask for a +/-, right?)
makes sense.
I guess that makes sense, since it would be FVA - PBO = Funded status, and both of those items would increase the PBO, which would decrease the liability. I always miss the easy intuitive ones because I answer too damn fast without thinking.
zimzim78 Wrote: ------------------------------------------------------- > It is B) > It’s a NEGATIVE (-) 85 were starting > with cuz UNDERFUNDED, not positive. Be careful > with little deets like this. man zim, I owe you one!! this was a very cunning trick. I thought it was D. I don’t understand how are we going to takle such minutia stuff in a 6 hr exam under immense pressure.
zimzim78 Wrote: ------------------------------------------------------- > It is B) > > I remember doing this Q a few weeks back and > fooked it up, even though I made the proper > adjustments. It’s a NEGATIVE (-) 85 were starting > with cuz UNDERFUNDED, not positive. Be careful > with little deets like this. It works this way: > > -85 + 27 - 12 = -70 > > Obviously, it would just appear under liabilities > on BS in old way (they didn’t ask for a +/-, > right?) i need clarification. how does it work? I understand that 85 is the liability under the new rules. would you say that under the old rules 15 //27-12// haven’t been recognized yet and therefore the liability is 85-15 = 70?
We used to reconcile the unrecognized items and show that amount on the BS. Here we start with -85 + [subtract gains] + [addback costs] = -85 - 12 + 27 = -70 i.e. a 70million pension liability
thanks, dinesh. that makes perfect sense now.
budfox427 Wrote: ------------------------------------------------------- > FVA - PBO = Funded status, and both of those items > would increase the PBO, which would decrease the > liability. Only prior service cost will increase the PBO but Actuarial gains would decrease the PBO.
Prior to late 2006, we ignored the unrecognized components (i.e. actuarial gains). After 2006, we included them, from the reading. This problem says that “ABC Company pension plan on December 31, 2005 is underfunded by 85 million. Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million.” This, to me, means that currently, the plan’s liability is -85 to start off with. When we recognize the actuarial gains of 12, this would *REDUCE* the liability to -73. However, when we recognize the prior service costs of 27, this increases the liability to -100. Therefore, I *THOUGHT* that the answer should be: 85 and 100 (and not option D, which is 100 and 85), which aren’t even my options. After 2006, we included the unrecognized assets/liabilities. Does the -85 already incorporate (i.e. recognize) the unrecognized +12 and -27? ANOTHER WORDS, TO DO THESE PROBLEMS, IS THE UNRECOGNIZED ACTUARIAL GAINS AND PRIOR SERVICE COSTS REALLY RECOGNIZED, BUT IT’S REFERRED AS BEING ‘UNRECOGNIZED’? I’m re-pasting the question, since I have a HUGE question on it: ABC Company pension plan on December 31, 2005 is underfunded by 85 million. Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million. What is the amount of the pension liability on ABC’s balance sheet on dec. 31, 2005, assuming the financials were prepared according to U.S. GAAP under the: Old Pension Standards? New Pension Standards? A) 70, 70 B) 70,85 C) 100,70 D) 100, 85
pension liability in old standard = unfunded amount ± adjustments unfunded amount = PBO - pension plan assets
So whats the answer I say D
Packers31 Wrote: ------------------------------------------------------- > So whats the answer I say D Dude…welcome to FRIDAY. Did you just get here? Answer was posted about 24 hours ago, after which I proceeded to give the explanation and the “heads-up” to watch for BS like this.
suppose that the date of this question weren’t dec.2005, but dec.2007. How would that change the answer?
no…we’ve encountered this issue before…just because the date in the question is conflicting with the dates of the change in standard…doesn’t mean the standard is based on that…unless specifically mentioned in the question… I mean that date could be 2100 for all that matters…