Question

Chapter 11 : Nonprofit and International Accounting

On January 1, 2017, Xiamen Company made amendments to its defined benefit pension plan that resulted in 61,600 yuan of past service cost. The plan has 5,160 active employees with an average expected remaining working life of 16 years. There currently are no retirees under the plan.

Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.

Required:

1. Prepare journal entries for the past service cost for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.
2. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert IFRS balances to U.S. GAAP.

Answer 1

A. Journal Entry for Past service cost for year ended December 31, 2017 under:

1.IFRS (entity shall recognize past service cost as an expense when the plan amendment or curtailment occurs)

Profit and Loss A/c Debit $61600

Present value obligation Credit $61600

Assuming that employees have not completed the vesting criteria and cost will be recognised over the remaining period to the vesting.

2.US GAAP (Minimum recognition prescribed as per ASC715.)

Other Comprehensive Income ('Items that may be reclassified to profit or loss) A/c Debit $3850

Other Comprehensive Reserve A/c Credit $3850

B. Journal Entry for Past service cost for year ended December 31, 2018 under:

1.IFRS-No entry

2.US GAAP (Minimum recognition prescribed as per ASC715.)

Other Comprehensive Income ('Items that may be reclassified to profit or loss) A/c Debit $3850

Other Comprehensive Reserve A/c Credit $3850

C. Entries in the books of US Parent for conversion as at year end December 31, 2017 :

1.Present value obligation Debit $61600

Profit and Loss A/c Credit $61600

2.Other Comprehensive Income ('Items that may be reclassified to profit or loss) A/c Debit $3850

Other Comprehensive Reserve A/c Credit $3850

D.Entries in the books of U Parent for consolidation as at year end December 31, 2018:

Other Comprehensive Income ('Items that may be reclassified to profit or loss) A/c Debit $3850

Other Comprehensive Reserve A/c Credit $3850