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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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In this chapter, conceptual issues related to pension liabilities and the presentation of pension assets are examined.

Required:

Explain the conceptual issues for pension liabilities and assets and discuss how GAAP resolves each of these three conceptual issues.

To determine

Describe the conceptual issues related to pension liabilities and assets, and explain the manner in which GAAP resolves the conceptual issues.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

Describe the conceptual issues related to pension liabilities and assets, and explain the manner in which GAAP resolves the conceptual issues as follows:

1. Pension liabilities: The conceptual issued related to the pension liabilities involves,

(a) The definition of a liability: A liability is a future sacrifice of economic benefits that would arise from a present obligation of the company in order to transfer the asset or provide service in future as a result of the past transactions and events. Pension is a form of deferred compensation hence it is considered as a liability.

(b) There are five alternatives to recognize the pension liability. They are,

  • Employer contribution to the pension fund based on the actuarial funding method.
  • Recognition of total pension fund till the employee service period.
  • Termination liability of employer.
  • The amount of vested benefits earned by employees...

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