CFA Practice Question
Select the correct statement(s):
II. For a defined contribution plan, the expense recognized each period is equal to the cash contribution by the employer.
I. For a defined benefit plan, the expense recognized each period is equal to the cash contribution by the employer.
II. For a defined contribution plan, the expense recognized each period is equal to the cash contribution by the employer.
A. I only
B. II only
C. None of them
Explanation: Both statements are false.
User Contributed Comments 8
| User | Comment |
|---|---|
| anricus28 | Both are incorrect since there is a large formula for calculating the expense. Part II is incorrect, the expense is the amount which the employer has agreed to contribute (whether or not paid). If this is not paid, then expense is still recognised and an accrual put through. |
| asjiang | For a defined contribution plan, the expense recognized each period is equal to the required contribution by the employer, which can either be paid in cash or recorded as a liability. Therefore, cash contribution is <= expense recognized. |
| Roy1123 | When recording as a liability (credit), where is the corresponding debit recognized? Why is not also an expense? |
| Reinhard2 | Expense - Contribution = increase in Net Pension Liability. So Contribution is outside of Expense. |
| krisscfa | Key word : Cash contribution |
| dblueroom | Roy1123 - debit pension expense, and credit liability (or cash) |
| yxten1 | expense is still recognized even there was no CASH contributed. |
| Hishy | II is like taxes - your income tax expense on your I/S is not necessarily the same as the taxes paid on your CF statement |