CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Select the correct statement(s):

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
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