Acc541_Week_6_Project

MEMORANDUM TO: Chief Executive Officer FROM: Senior Accounting Team A DATE: October 25, 2010 SUBJECT: New Business Acquisition Pursuant to your request, we have researched some of the issues with our new acquisition including researching the reporting requirements for defined contribution benefit plans, defined contribution plans, in addition to other post retirement plans and what must be done to eliminate the two segments in our new acquisition according to the Financial Accounting Standards Board (FASB). Defined Contribution Plan: In a defined contribution plan, fixed contributions are paid into an individual account by employees and employers. [1] With the defined contribution plan, the employee promises to contribute a certain amount into the plan each period from the employee’s salary and then the employer contributes a portion, which sometimes could match the employee’s contribution. But, there is no promise made concerning the ultimate benefits to be paid. These are your typical 401(k) plans. The employee generally has control over the investment decisions but the plan sponsor retains responsibility over investment of the plan assets. They determine the selection of the administrative providers. With the defined contribution plan, the risk for future benefits is the employee’s and the employer’s only expense is the promised contribution to the pension plan. With this type of plan the employer’s financial statements should disclose the plan exists, who is covered, the basis for determining the contributions, and anything that may affect the comparability from period to period. The defined benefit contribution plan accounting portion is fairly simple. [2] Defined Benefit Plan: According to FASB codification 715-20-50 all employers that sponsor defined benefit plan are required to report the changes in net funded assets whereby overfunding is reported as pension asset and underfunding is recognized as pension liability. Since plan assets are restricted assets they are reported as noncurrent asset in the balance sheet and on the other hand any benefit payable within next 12 months is reported as current liability. If a company sponsors more than two plans than all over funded plan should be combined and reported as net assets and all underfunded plan should be combined and shown as one amount on the balance sheet. Any actuarial gains and losses along with prior service costs should be recognized as an increase or decrease in the comprehensive income. There is some information that may not be shown on the financial statement but are disclosed in the notes. A schedule is required showing all major components of pension expense. A reconciliation of beginning and ending balances of plan assets due to the effect of the projected benefit obligation is required. All rates used to measure the benefit amounts needs to be disclosed. A table of pension plan assets is by category is disclosed. The disclosure will include the expected benefit payment for each of the next five fiscal years and an aggregate for the five fiscal years thereafter[3]. Other Post Retirement Benefits: FASB Codification 715-60-25 states that other post-retirement plans must be reported as an asset and a liability depending on whether the plan is overfunded or underfunded. In addition, an employer that sponsors one or more single-employer defined benefit postretirement plans other than pensions shall recognize in its statement of financial position the funded statuses of those plans. The employer shall aggregate the statuses of all overfunded plans and recognize that amount as an asset in its statement of financial position. It also shall aggregate the statuses of all underfunded plans and recognize that amount as a liability in its statement of financial position. Any changes in the overfunding or underfunding of the plan must be reported in the year in which the change was made. The employer must also recognize any gain or loss from the plan in other comprehensive income. Footnotes to the financial statements must include any information relating to any delay of recognizing a gain or loss, any transitions of assets or obligations, and any prior costs and credits that would effect the next fiscal year reporting of the net periodic benefit cost[4]. Segment Elimination: According to FASB Codifications 280-10-50-34 and 250-10-50-35, in order to eliminate these two segments from our new acquisition the following must be done: The corresponding information for earlier periods, including interim periods, should be restated unless it is impracticable to do so. Accordingly, a public entity shall restate those individual terms of disclosure that it can practicably restate but need not restate those individual items, if any, that it cannot practicably restate. Following a change the composition of its reportable segments, a public entity shall disclose whether it has restated the corresponding items of segment information for earlier periods[5]. If a entity has changed the structure of its internal organization in a manner that causes the composition of its reportable segments to change and if segment information for earlier periods, including interim periods, is not restated to reflect the change, the entity shall disclose in the year in which the change occurs segment information for the current period under both the old basis and the new basis of segmentation unless it is impracticable to do so[6]. Conclusion: In conclusion, we have researched all the relevant facts on the reporting for various retirement plans and briefly discussed the reporting requirements for eliminating the segments in our new acquisition. We are available to further expound on any and all of the points that we have covered in this brief memo. Please let us know if you have any questions in regards to this or any other matter. ----------------------- [1] Defined Contribution Plan (2010). Overview. Retrieved from http://en.wikipedia.org/wiki/Defined_contribution_plan [2] Schroeder, R., Clark, M., Cathey, J. (2005). Financial accounting theory and analysis. John Wiley and Sons. [3] Financial Accounting Standards Board. (2009, July). Codification 715-20-50-1, Defined Benefit Plans. Retrieved from www.fasb.org [4] Financial Accounting Standards Board. (2009, July). Codification 715-60-25, Other Post-Retirement Benefits. Retrieved from www.fasb.org [5] Financial Accounting Standards Board. (2009, July). Codification 280-10-50-34. Segment Reporting. Retrieved from www.fasb.org [6] Financial Accounting Standards Board. (2009, July). Codification 250-10-50-35. Segment Reporting. Retrieved from www.fasb.org