Date: June 29, 2010
Sub: Acquisition & Pension Plans
Acquisition Analysis & Benefits from Acquisition
The 100% acquisition of other business by the manufacturing company will be beneficial. It is because; full acquisition of the other business will bring two new segments for the manufacturing company that will pose a higher growth rate. It will also facilitate two new pension plans that will be beneficial to motivate the employees. But at the same time, the two segments and pension plans are entirely new for the business that may affect its profitability and effectiveness.
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The employee also contributes on a regular basis in this plan. At the time of retirement, this accumulated income can easily be determined (Maple, 2002). The FASB codification sets that employees may choose their investment plan or pension plan according their future requirements. In this plan the benefit from pension is completely based on the contribution of employer and employee. This plan promise to provide a fixed income to the retiree that is based on actual compensation. This contribution is made in an investment account so the return on investment also affects the pension benefits. According to FASB codification, the organization has to disclose the description of the beneficiaries, contribution basis and all other factors that may affect the investment account's comparability (Epstein, Nach & Bragg, 2009).
Defined Benefit Plan:
Defined benefit plan can be defined as the retirement plan that provides a fixed amount to the retiree per month. The amount generally based on the income and years of service of the employees. The salary history and employment duration are used in a formula to calculate the pension benefit for retiree. The risk of the investment and portfolio management is entirely subjected to control under company management (Zwick & Jurinski, 1999). The basis of calculations defined in the pension plan document that is provided to all employees. This plan also provides the benefits of added tax incentives to the employees.
The employees who adopt this pension plan benefits are informed on the annual basis about their pension benefits. The accurate calculation of the fixed amount as pension is essential to increase the benefits of this plan. The investment risk is approached by the employer that provides more benefits to the employees. This pension plan is reported in the financial statements of the company. The amount under this plan can be identified under the current assets section of the balance sheet as it is prepaid pension cost for the business. On the other hand, accrued pension cost can be identified in the long term liability section of the balance sheet of a business (Financial Accounting Standard Board, 2010).
Other Postretirement Plans: