Reporting of Pension Plan in Acquisition of Company Abc

In: Business and Management

Submitted By hadiboo
Words 1097
Pages 5
MEMORANDUM

TO: Company CEO

FROM: Accounting

SUBJECT: Reporting of Pension Plan in acquisition of Company ABC

DATE: June 11, 2013

In the acquisition of Company ABC, many factors must be considered, including the acquisition of the company’s pension plans and the addition of two segments. After careful analysis, the two operating segments have caused a loss to the company and must be eliminated. This memo will outline the reporting procedures for the pension plans and the necessary steps that must be taken to eliminate the segments.

Defined Contribution Plan

One of the most frequently encountered and widely used pension plans is the defined benefit plan. Under this plan, the employer is required to contribute a pre-determined amount of the employee’s salary to this pension plan. The amount of benefits paid out at the onset of retirement are not guaranteed and “are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, 2011). Employees also have the option of designating where their funds are invested, whether it be in stocks or in fixed-income securities. The defined contribution plan has become popular among employers due to no risk on behalf of the employer and the ease of reporting. Variations of the plan include: thrift plans, savings plans, 401(k) plans, profit-sharing plans, and incentive savings plans. Because of its simplicity in reporting, the defined contribution plan periodic pension expense is equal to the amount of the annual contribution. Schroeder, Clark and Cathey (2011) state “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…...

Similar Documents

Abc Steel Company

...ADMINISTRATION CASE ANALYSIS December 10, 2006 ABC STEEL COMPANY Robert Cruz, newly appointed Shop Manager of ABC Steel Company, was making his way through the plant back to his office. He had just reviewed the company’s most recent operating statistics with his boss, Rudyard de los Santos, Operations Manager. The statistics were shocking: ABC Company’s production backlog had reached such proportions that top management decided not to accept any further business. The company was paying penalties of P50, 000.00 a day due to non-fulfillment of contract delivery dates. ABC Company was one of the country’s largest producers of fabricated steel products. The company fabricated and installed storage tanks, mine and cane car bodies, dump bodies, boats and many types of structural steel. As shown in the organization chart (Exhibit 1), fabrication and installation activities were organized as independent activities. Robert Cruz had recently been promoted from Quality Control Supervisor to Shop Manager (see Exhibit 1). Twenty-nine years old, Robert had worked for ABC Company for the past 2 years. He had previously worked as a sheet metal worker and as an instructor at a United States naval base in Subic. Robert held an engineering degree from a local university. Plagued by an ever-increasing production backlog, ABC Company had placed Robert in charge of all shop operations. There were 200 workers in the shop reporting directly to leadmen who, in turn, reported......

Words: 1684 - Pages: 7

Abc Company

...As the controller of ABC Company, the CEO has come to you with a new opportunity that he’s been working on. The CEO would like to use the some of the shingle scrap materials to build cedar dollhouses. While this new product line would add additional raw materials and be more time-intensive to manufacture than the cedar shingles, this new product line will be able to leverage ABC’s existing manufacturing facilities as well as the current staff. Although this product line will require added expenses, it will provide additional revenue and gross profit to help reach the growth targets. The CEO is relying on you to help decide how this project can be afforded Provide details about the estimated product costs, what is needed to break even on the project, and what level of return this product is expected to provide. In order to help out the CEO, you need to prepare a six- to eight-page report that will contain the following information (including exhibits, but excluding your references and title page). Refer to the accompanying Excel spreadsheet (available through your online course) for some specific cost and profit information to complete the calculations. Final Paper Spreadsheet I. An overall risk profile of the company based on current economic and industry issues that it may be facing. II. Current company cash flow a. You need to complete a cash flow statement for the company using the direct method. b. Once you’ve completed the cash flow statement, answer the......

Words: 689 - Pages: 3

Pension Reporting

...Pension Reporting and Segment Elimination Requirements Deborah Hunter, Stephanie Murray, James Newsome, Sharon Stubbs, and Star Troutman ACC 541 January 14, 2013 Shauki Smith MEMORANDUM TO: CEO FROM: Team A DATE: January 14, 2013 SUBJECT: Pension Reporting and Segment Elimination Requirements CC: Shauki Smith This memo serves to provide an explanation of required reporting for define contribution, defined benefit, and other postretirement plans. In addition to pension reporting requirements, an explanation of the requirements for eliminating segments is also provided. Defined Contribution Plan In a defined contribution plan, companies will define how much they plan to contribute each period to the employee’s retirement benefits. The company defines the period. The company will contribute the amount to a funding agency such as a pension fund. The company is not liable for the amount of benefits the employee receives upon retirement. Therefore, the company must only contribute the amount that was set forth each period. Defined benefit plans, on the other hand, are more complex. Instead of contributing each period to the employees retirement account, the company agrees to provide a certain benefit amount each period upon retirement. Therefore, the company must ensure that the funding for such plans are adequate to cover the employee’s retirement benefit plan. Non-GAAP Funding Methods A company that offers defined benefit plans to their employees...

Words: 965 - Pages: 4

Reporting Pension Plans

...MEMO Our company has recently acquired another company which has two segments and two different pension plans. These segments could create reporting issues which we would want to eliminate. To fulfill this objective, we should first understand what the different postretirement plans are and what their reporting requirements are after which we would identify steps to eliminate the two segments. * Defined Benefit Pension Plan In a defined benefit pension plan, employee gets a specified monthly benefit at retirement. The amount of benefit may be decided by the company based on the salary and service level of the employee. The reporting requirement for this pension plan is to include information in two categories. Category 1: The plan should include information in two financial statements: (a) A statement of plan net assets that provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets (b) A statement of changes in plan net assets that provides information about the year-to-year changes in plan net assets The notes requirement should address the following: * Brief plan description * Summary of significant accounting policies * Information about contributions, legally required reserves, and investment concentrations Category 2: Information should be presented in two schedules: (a) A schedule of funding progress that reports the actuarial value of assets, the actuarial accrued liability, and the......

Words: 745 - Pages: 3

Pension Plans

...June 29, 2010 Sub: Acquisition & Pension Plans Acquisition Analysis & Benefits from Acquisition The 100% acquisition of other business by the manufacturing company will be beneficial. It is because; full acquisition of the other business will bring two new segments for the manufacturing company that will pose a higher growth rate. It will also facilitate two new pension plans that will be beneficial to motivate the employees. But at the same time, the two segments and pension plans are entirely new for the business that may affect its profitability and effectiveness. The 100% acquisition by the manufacturing company will facilitate opportunity of the business expansion by intensifying its existing business activities. The manufacturing business would be able to capture new market and business areas by eliminating the need of setting up the business in new areas. It would also be helpful to establish a competitive advantage for the business that would cause an increase in its competitive position. The acquisition would increase the efficiency in resource utilization that would reduce competition in the industry. The business expansion would cause an increase in market share of manufacturing company that would increase awareness about the product and services of it. Thus, acquisition will be beneficial for manufacturing company. Pension Plans The 100% acquisition of other company by the manufacturing company will also bring two new pension plans that will be......

Words: 981 - Pages: 4

Pension Plans

...employees with a pension plan for many years. Through the use of a funding agency, payments are invested so that periodic payments can be made to the employee during retirement. Defined contribution and defined benefit are the two most common type of pension plans. However, employers offer additional retirement benefits such as tuition assistance, healthcare, life insurance, and housing subsidies (Schroeder, Clark, & Cathey, 2011, p. 470) as guided by SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Each plan caries different risk and benefits for employer and employee. A brief summary is hereby provided to aid in deciding the appropriate plan for the company. Defined Contribution Defined contributions plans are rapidly becoming the preferred plan for most firms. The plan offers less risk to employers because employees make contribution towards retirement funds. Employees contribute a set percentage, taken from the salary, to the plan. Funds are invested into a plan such as a 401K or Thrift Savings Plan (TSP) for Federal employees. The amount the retiree receives is based on the return on investment at the receipt. That is, the benefits the recipients earn are based on the stability of the investment and the return earned on funds during the time of investment. The risk of the investment is borne by the employee as the market changes in value. The employer’s responsibility is the “annual contribution to the pension plan......

Words: 812 - Pages: 4

Pension Plans

...Running Head: Pension Plans Abstract The goal of pension plans is to provide a fixed income for individuals during retirement. In practice, this means either paying employees a fixed income when they reach a predetermined retirement age or can no longer work due to disability (Dessler, 2005, p. 492). However, since the 1980’s the number of employers offering pension plans has declined. Once considered a common benefit in the workplace and motivator for senior employees to remain with the organization, private pension plans has drastically dropped 74 percent (Carrell & Heavrin, 2007, p. 329). This research paper will first explain how pension plans are classified and then identify several reasons why pension plans has declined. Moreover, it will discuss which pension plans are in use today, and finally, what regulations govern pension plans. Private Pension Plans: America’s Vanishing Benefit When one company after another reneges on its pension obligation toward current and future employees, you know it’s going to get ugly. Just ask any veteran employee of a major airline who may only receive half the value of his/her pension upon retirement. Walsh (2004) reported that United Airlines’ pension payment debt nearly topped $23.4 billion along with another $1 billion for retiree health care benefits (para. 11). In other words, pension payments have the potential to basically bankrupt an industry. How should companies challenge the rising cost of......

Words: 2591 - Pages: 11

Company Mergers and Acquisitions

...organization during mergers and acquisitions. It explains the challenges of merging the HR processes of the two organizations and suggests implementation strategies to prevent risks and delays. Mergers and acquisitions are preferred by companies in an increasingly competitive environment to acquire economies of scale and critical mass. Mergers and acquisitions result in complete change in the way the business is running and there are no other events in any organization which can be more difficult and challenging. According to Jensen & Ruback (1983) mergers and acquisitions benefit companies as it provides synergy, tax saving, shareholder wealth maximization and signaling. Draper & Paudyal (2008) state mergers and acquisitions have been beneficial to economies as the production achieves higher efficiency and has improved output. The economies achieved the ability to have improved bargaining power with the supplier and customer due to mergers and acquisitions. Mergers provide the companies to get tax savings. Mergers and Acquisitions According to Elebourne & Rambarran (2004), the process of merger refers to the process where one company is merged with another, and acquisition refers to the process when the company acquires another company. The merger process can be horizontal, vertical or conglomerate. As per Stigler (1950), horizontal mergers are achieved by merging the products and services. Horizontal merger is used in the way that the share of the company increases in the......

Words: 2240 - Pages: 9

Abc Company

...ABC Company Keshia Tate Principles of Accounting II : ACC 206 Donald Morrison May 18, 2015 ABC is a manufacturing company that specifies in making cedar roofing and siding shingles. The company has annual revenue of about $1.2 Million, which is an increase at 25% from last year. Looking forward to the future the company has a goal of reaching $3 million in annual sales within the next three years. The owners has been trying to find additional products that can leverage the current ABC employee skillset as well as the manufacturing facilities. ABC Company has come to me with a task to perform an analysis with his new ideas on ways to increase profit. ABC Company wants to use some of the shingle scrap materials to build cedar dollhouses, which would help not to waste the material. This new idea would add additional raw materials and be more time-intensive to manufacture than the cedar shingles. This new product line will be able to leverage ABC’s existing manufacturing facilities as well as the current staff. Although this product line will require added expenses, it will provide additional revenue and gross profit to help reach the growth targets. Since the company is depending on me to help analyze how this product can be affordable. This will be an analysis of the company’s current financial findings and a risk profile in order to determine if this is a possible opportunity. A corporate risk profile helps a department or agency establish a direction for......

Words: 1182 - Pages: 5

Pension Plans

...Defined Benefit and Defined Contribution Pension Plans What are the advantages and disadvantages of a Defined Benefit Pension Plan? Advantages of a Defined Benefit Pension Plan •Provides an explicit benefit which is easily communicated •Time to invest not as crucial a factor for older employees •Older employees may receive more benefit than under a DCPP •Payroll deduction possible for employee contributions •Past service benefits possible Disadvantages of a Defined Benefit Pension Plan •Employees rarely participate in investment decisions •Employees receive reasonable rates of return on termination Employer absorbs risk associated with changes in interest rates and investment returns •Employer is responsible for funding any plan deficit, but the fund surplus must be shared with employees if plan is wound up •Actuarial evaluations required by law •More difficult to provide early retirement calculations •Future employer costs are more difficult to project •Employer is responsible for funding any plan deficits •Higher administration costs What are the advantages and disadvantages of a Defined Contribution Pension Plan? Advantages of a Defined Contribution Pension Plan: •Payroll deduction possible for employee contributions •Plan context is easy to understand and communicate •Employees can participate in investment decisions •Actuarial calculations of funding not required •No surplus or deficit in pension fund to manage •Contributions......

Words: 502 - Pages: 3

Abc Company

...Abc Company Les Partain, manager of the training and development department for Gazelle Corporation, was 64 years old and had been with the firm for over 30 years. For the past 12 years he had served as Gazelle’s training and development manager and felt that he had been doing a good job. This belief was supported by the fact that during the last five years he had received excellent performance reports from his boss, LaConya Caesar, HR director. Six months before Les’s birthday, he and LaConya were enjoying a cup of coffee together. “Les,” said LaConya, “I know that you’re pleased with the progress our T&D section has made under your leadership. We’re really going to miss you when you retire this year. You’ll certainly live the good life because you’ll receive the maximum retirement benefits. If I can be of any assistance to you in developing the paperwork for your retirement, please let me know.” “Gee, LaConya,” said Les. “I really appreciate the good words, but I’ve never felt better in my life, and although our retirement plan is excellent, I figure that I have at least five more good years. There are many other things I would like to do for the department before I retire. I have some excellent employees, and we can get many things done within the next five years.” After finishing their coffee, both returned to their work. As LaConya left, she was thinking, “My gosh, I had no idea that character intended to hang on. The only reason I gave him those good......

Words: 330 - Pages: 2

Pensions and Retirement Plans

...Pensions and Retirement Pla ACC/541 May 7, 2012 Pensions and Retirement Plans Memo To: Kimberly Taylor, CEO, Kim’s Tasty Kookies From: Donna Robinson, CFO, Kim’s Tasty Kookies Date: May 7, 2012 ------------------------------------------------- Subject: Pensions and Retirement Plans Kim’s Tasty Kookies had begun operation in 1895 with Kimberly great-grand mother making her famous chocolate chips for children. Although the recipes were handed down through three generation of Taylors, Kimberly Taylor felt it was her duty to share her great-grand mother Kookies recipes with the world in 1995. Just 10 year later, the company has made it on the cover of Fortune 500 this past December. After buying out the local cookie company, Kim’s Tasty Kookies (KTK) opened new branches in England, Mexico and Canada. The acquired company included two segments with two different pension plans. This memo will discuss Defined Contribution, Defined Benefit, and Other Postretirement Plans as well as an explanation of the possible effects of eliminating the two segments. Defined Contribution Plan With a defined-contribution plan, Kim’s Tasty Kookies would agree to contribute to the pension trust an certain amount each period, based on a formula. This formula would take into consideration such factors as age, length of employee service, KTK’s profits, and compensation level (Kieso, Weygandt, & Warfield, 2007). This plan makes no projection regarding the ultimate......

Words: 1197 - Pages: 5

Pension and Postretirement Plans

...Acquisition of Other Company, Pensions and Other Postretirement Plans   Abstract Recently, Midsize Manufacturing Company acquired 100% of another company. Along with the acquisition, Midsize Manufacturing Company inherited the former company’s employee pension plans and other postretirement plans. In the following I will discuss the required reporting for defined contributions, defined benefits, and other postretirement benefits. I will also address how the former company’s segments shall be dissolved. Defined Contribution Plan vs Defined Benefit Plan First, Midsize Manufacturing Company must determine the type of pension plan that will be offered to the inherited employees. The employees from the former company experienced two differing pension plans. It is in the best interest of Midsize Manufacturing Company to select one plan moving forward. According to Schroeder, Clark, and Cathey (2011), the two most frequently encountered types of pension plans are defined contribution plans and defined benefit plans (p. 456). On one hand a defined contribution plan applies a set amount to the employee’s retirement per period. Often the employee will contribute a designated amount to the investment and the employer then has a match plan coinciding with the employee’s investment. Examples of defined contribution plans are 401(k) or 403(b). Defined contribution plans tend to be useful for small to midsize companies “since the risk for future benefits is borne by......

Words: 1043 - Pages: 5

The Coca-Cola Company and Pepsico Pension Plans

...Coca-Cola Company and PepsiCo Pension Plans Intermediate Accounting III – ACC 305 Strayer University November 20, 2011   Abstract The Coca-Cola Company and PepsiCo are both very large manufacturing corporations that operate worldwide. Over the years, each corporation has had a very longevity of business success. The expansion of business and brands through subsidiaries, partnerships and franchises in beverage and food products has been a consistent growth in retail sales for both corporations. With such growth, they employ thousands of employees worldwide and offer competitive benefits to include medical, life, and retirement. In 2006, both corporations adopted SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). For this particular paper, the goal will be to complete a comparative analysis of the pension plans that each corporation make available to their employees and retirees. Analysis A pension plan is an employer contributory or noncontributory saving plan which can also be qualified and nonqualified that businesses offer to their employees to assist with their retirement. With contributory plans, the employer and the employee make contributions into the savings. Whereas, with noncontributory plans, only the employer is required to make the contributions while the employee’s participation is optional. Under a qualified plan, tax......

Words: 1000 - Pages: 4

Pension Plan Disclosure and Reporting Requirement

...MEMORANDUM To: The Chief Executive Officer –ABC Inc. From: Vincent Mokwenye, Financial Controller. Subject: Pension Plan Disclosure and Reporting Requirement CC: This brief memo will address the topic of Pension Plans. Specifically, it shall discuss the two basic types of pension plans and the other postretirement plan. Then it shall examine the purpose of pension plan reporting requirements, their effect on the financial statements, and the significance of each type of pension plan. It will also examine the positive and negative implications of each of the pension plans. Defined Benefit Pension Plan - A defined benefit plan is a retirement plan set up to pay a fixed annual amount to eligible employees during their retirement. It is called defined benefit because the quarterly or annual contribution is based upon an actuarial determination of what the participants' retirement benefits should be, not on profits. The formulas look at how much money must be contributed in order for there to be enough money to pay a FIXED amount of benefit(s) to recipients in the future. These projections use a reasonable expected rate of return (401kpsp.com, 2012). Defined Contribution Plan- A defined contribution plan is a retirement plan that requires that an individual "account" be set up for each participant in the plan. It is called "defined contribution" because a participant can only contribute a fixed maximum amount to the plan each year. The contributions are not......

Words: 1342 - Pages: 6

Danny Huston | منضدية و ترايبود مصغرة | Mashiro-iro Symphony The Color of Lovers