Segment_Elimination_and_Pension_Plans

Memorandum TO: CEO From: Controller Date: February 13, 2012 Subject: Segment Elimination and Pension Plans The 100% acquisition of another company by the manufacturing company will bring two new pension plans that will be effective to increase the employees' motivation. The different pension plans require different reporting. A defined contribution plan set forth a certain amount that the employer is to contribute to the plan each period. There are no definite amounts of benefits to be paid. The retirement benefits received by the recipient are determined by the return on the invested pension funds during the investment period. Accounting for defined contribution plans is the risk for future benefits is borne by the employee, the employers only cash outflow is the annual contribution to the pension plan fund. The FASB codification sets that employees may choose their investment plan or pension plan according to their future requirements. When a company adopts a defined contribution pension plan, the employer’s financial statements should disclose the existence of the plan, the employee groups covered, the basis for determining contributions, and any significant matters affecting comparability from period to period. According to FASB codification, the organization has to disclose the description of the beneficiaries, contribution basis and all other factors that may affect the investment account's comparability (Epstein, Nach & Bragg, 2009). A defined benefit plan can be defined as the retirement plan that provides a fixed amount to the retiree per month. The amount generally based on the income and years of service of the employees. The salary history and employment duration are used in a formula to calculate the pension benefit for retiree. The risk of the investment and portfolio management is entirely subjected to control under company management (Zwick & Jurinski, 1999). The basis of calculations defined in the pension plan document that is provided to all employees. This plan also provides the benefits of added tax incentives to the employees. The employees who adopt this pension plan benefits are informed on the annual basis about their pension benefits. The accurate calculation of the fixed amount as pension is essential to increase the benefits of this plan. The investment risk is approached by the employer that provides more benefits to the employees. This pension plan is reported in the financial statements of the company. The amount under this plan can be identified under the current assets section of the balance sheet as it is prepaid pension cost for the business. On the other hand, accrued pension cost can be identified in the long term liability section of the balance sheet of a business (Financial Accounting Standard Board, 2010). The acquired firm has two new different pension plans that will bring new reporting requirement for the business. The defined contribution and defined benefit plan are both effective to motivate and to increase the security of the employees yet there are numerous other pension plans that can be used to increase employee productivity and morale towards the organization. The individual pension plan, fixed deposit, property and mutual fund plan are additional postretirement plans that can be used for employees' security. Different plans require different types of reporting requirements. Elimination of the two segments can cause a few different scenarios. Typically, when one company buys another, the stock of the company being bought will initially jump in price and then be redeemed for cash or exchanged for shares of the buyer's stock. If the buyer is a publicly-traded company, its stock usually declines upon the announcement. The buyer will have to offer a premium for the stock of the company it wants to buy in order to induce the shareholders to sell. Sometimes the stock of the company being bought can shoot up as much as 50 to 100 percent in one day; other times it may start moving up ahead of time on rumors of a buyout. The buyer typically pays with cash or its own stock. If the buyer is a publicly-traded company, investors will most likely get stock at an agreed exchange rate. Some small investors may get cash for any fractional shares or lots of less than 100 shares. If the buyer is a private company or a private equity fund, it will pay cash to the current shareholders. (Fedorov, 2012).