Acc541 Week 6 Project

TO: Chief Executive Officer

FROM:   Senior Accounting Team A

DATE:   October 25, 2010

SUBJECT:   New Business Acquisition

Pursuant to your request, we have researched some of the issues with our new acquisition including researching the reporting requirements for defined contribution benefit plans, defined contribution plans, in addition to other post retirement plans and what must be done to eliminate the two segments in our new acquisition according to the Financial Accounting Standards Board (FASB).

Defined Contribution Plan: In a defined contribution plan, fixed contributions are paid into an individual account by employees and employers. [1] With the defined contribution plan, the employee promises to contribute a certain amount into the plan each period from the employee’s salary and then the employer contributes a portion, which sometimes could match the employee’s contribution.   But, there is no promise made concerning the ultimate benefits to be paid.   These are your typical 401(k) plans.

The employee generally has control over the investment decisions but the plan sponsor retains responsibility over investment of the plan assets.   They determine the selection of the administrative providers. With the defined contribution plan, the risk for future benefits is the employee’s and the employer’s only expense is the promised contribution to the pension plan.   With this type of plan the employer’s financial statements should disclose the plan exists, who is covered, the basis for determining the contributions, and anything that may affect the comparability from period to period.   The defined benefit contribution plan accounting portion is fairly simple. [2]

Defined Benefit Plan: According to FASB codification 715-20-50 all employers that sponsor defined benefit plan are required to report the changes in net funded assets whereby overfunding is reported as pension asset and underfunding is recognized as pension liability. Since...