Question 1

Pension plans are drafted to meet Revenue Canada requirements so that the benefits received after retirement are not subject to income tax and the contributions by the employer are not a taxable benefit to the employee.

Accepted Answer

Pension plans are designed to meet the requirements of the Income Tax Act and ensure that benefits received after retirement are not subject to income tax. Contributions made by the employer are also not considered taxable benefits to the employee.

Question 2

A trustee is independent and receives the pension contribution from the employer and invests it in accordance with provincial regulations.

Accepted Answer

A trustee is a third-party entity that is responsible for managing and investing pension contributions. They are independent and act in the best interest of the pension plan members. The trustee receives the pension contribution from the employer and invests it in accordance with provincial regulations.

Question 3

For a given employee group,the accumulated benefit method of funding for defined benefit plans results in increasingly larger contributions to the fund over time when compared to both the projected unit credit and level contribution methods.Assume that average salaries increase over time.

Accepted Answer

The accumulated benefit method takes into account the expected increase in salaries over time, and therefore requires larger contributions to the fund as the employees accrue more benefits. This is in contrast to the projected unit credit and level contribution methods, which generally require constant or gradually increasing contributions over time.

Question 4

In the long run,the projected unit credit,accumulated benefit,and level contribution methods all provide the same funding.

Accepted Answer

These methods differ in how they allocate the cost of pensions over an employee's service period, leading to variations in funding patterns and amounts at different times.

Question 5

In a non-contributory,defined benefit pension plan,the plan assets are composed of the employer's cumulative contributions less cumulative pension benefits paid from the fund.

Accepted Answer

In a non-contributory, defined benefit pension plan, the plan assets include not only the employer's contributions but also investment earnings on those contributions. The assets are not reduced by the pension benefits paid; rather, the plan's liabilities include the obligation to pay these benefits.

Question 6

Under the simplified approach to accounting for defined benefit pension plans under ASPE,all past service costs and unrecognized actuarial gains and losses must all flow through pension expense immediately.

Accepted Answer

Under the simplified approach to accounting for defined benefit pension plans under ASPE, all past service costs and unrecognized actuarial gains and losses must be recognized immediately in the statement of financial position and must flow through pension expense in the current period.

Question 7

A change in actuarial assumptions is the only possible cause for an actuarial gain or loss.

Accepted Answer

An actuarial gain or loss can also be caused by a difference between actual and expected experience, such as differences in mortality rates or investment returns.

Question 8

Pension plans are normally registered with the pension commissioner in the province of jurisdiction.

Accepted Answer

Pension plans must be registered and comply with the Pension Benefits Standards Act or Regulations in their respective provinces, which are overseen by the pension commissioner.

Question 9

Under the simplified approach to accounting for defined benefit pension plans under ASPE there may be a pension asset ceiling.

Accepted Answer

Under the simplified approach to accounting for defined benefit pension plans, a company must calculate the funded status of the plan and recognize any resulting asset or liability (subject to a pension asset ceiling, if applicable).

Question 10

In accounting for pension costs,any difference between current year's pension expense and contribution into the pension trust should be reported as a(n):
A) offset to pension plan assets.
B) accrued actuarial liability.
C) deferred pension liability/cost.
D) operating expense of the current period.

Accepted Answer

Any difference between the current year's pension expense and contribution into the pension trust represents an amount that is either underfunded or overfunded. If the contribution is less than the expense, it means that the company has underfunded its pension obligations, which creates a deferred pension liability. Conversely, if the contribution is greater than the expense, it means that the company has overfunded its pension obligations, which creates a deferred pension cost. Therefore, the best choice is C, deferred pension liability/cost.

Question 11

The vested benefit of an employee in a pension plan represents benefits:
A) accumulated in the pension plan (at fair value).
B) that are not contingent on the employee continuing in the service of the employer.
C) to be paid to the retired employee in the current year.
D) to be paid to the retiring employee in the next year.

Accepted Answer

Vested benefits are those that the employee is entitled to receive, regardless of whether they continue working for the employer.

Question 12

Under both IFRS and ASPE,the balance in net pension liability (asset)account will equal the funded status of the registered defined benefit plan in question.

Accepted Answer

Under both IFRS and ASPE, the net pension liability (asset) represents the funded status of the registered defined benefit plan, which includes the difference between the fair value of plan assets and the defined benefit obligation (DBO). Therefore, the balance in the net pension liability (asset) account will equal the funded status of the plan.

Question 13

IFRS requires that the projected unit credit method be used for both funding purposes and accounting estimates.

Accepted Answer

IFRS requires the use of the projected unit credit method for accounting estimates of defined benefit obligations, but it does not mandate a specific method for funding purposes; funding requirements are typically determined by local regulations or standards.

Question 14

For income tax purposes,an employee would prefer to make contributions to a qualified pension plan than to a nonqualified pension plan.

Accepted Answer

Contributions to a qualified pension plan are tax-deductible, while contributions to a nonqualified pension plan are not. Therefore, an employee would prefer to make contributions to a qualified plan in order to lower their taxable income.

Question 15

Benefits pursuant to a pension plan that are not contingent upon an employee's continuing service are referred to as:
A) funded.
B) underfunded.
C) insured.
D) vested.

Accepted Answer

Benefits that are not contingent upon an employee's continuing service are considered fully vested, meaning they belong entirely to the employee and cannot be forfeited or taken away. Funded and underfunded refer to the financial state of the pension plan, while insured refers to whether the plan is backed by an insurance company.

Question 16

Total net pension expense recognized over the life of a pension plan will be in excess of the total amount paid into the pension fund.

Accepted Answer

The total net pension expense recognized over the life of a pension plan is designed to match the total benefits paid out to participants, not exceed the total amount paid into the pension fund. Pension accounting aims to allocate the cost of pensions to the periods in which the associated employee services are rendered.

Question 17

Under a defined contribution pension plan,forfeitures are estimated in advance.

Accepted Answer

Under a defined contribution pension plan, forfeitures are not estimated in advance because contributions are defined and allocated to individual accounts, so there are no future benefits to estimate forfeitures for. Forfeitures typically occur in defined benefit plans or in the context of non-vested contributions in defined contribution plans when an employee leaves before becoming fully vested.

Question 18

When a pension plan is not trusteed,a company must report its pension plan assets and accrued pension liability on the balance sheet.

Accepted Answer

When a pension plan is not trusteed, the company sponsoring the plan must report the pension plan assets and accrued pension liability on their balance sheet as a pension liability. This is required by accounting standards to provide transparency and information to stakeholders regarding the company's financial health and obligations related to its pension plan.

Question 19

Current service costs are the main component of any defined contribution plan.

Accepted Answer

In a defined contribution plan, the main component is the contributions made by the employer and/or employee, not current service costs, which are more relevant to defined benefit plans.

Question 20

Under IFRS,net interest (finance)revenue or expense on defined benefit obligations must always be included within pension expense.

Accepted Answer

The answer of Under IFRS,net interest (finance)revenue or expense on...

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