When One Company Acquires Another One

Topics: Pension, Depreciation, Income statement Pages: 2 (778 words) Published: August 13, 2010
When one company acquires another one, the operations, policies, and practices need to be changed. In the case of multiple business segments with separate postretirement plans and the intention to eliminate each, many factors must be considered in relation to accounting reporting requirements. More specifically, the reporting for defined contribution, defined benefit, and other postretirement plans must be researched and the proper procedure to eliminate the two newly acquired segments must be understood. Pensions are a special category of liabilities, in that the expense for periodic costs is not tied to changes in the balance sheet. Once a pension plan is established, the company must make periodic estimates of future obligations, and these must be reflected in the financials as long term liabilities. Uncertainty and obstacles to accurate forecasting arise due to unknown future employee salary levels, vesting events, and investment performance of fund assets. A proper discount rate must also be selected to discount estimated future obligations back to a present value. This complexity in accounting for present and future obligations can easily lead to material misstatements in the balance sheet and income statement. Users of these financial statements must have a clear understanding of the assumptions and accounting methods used to calculate these items, so they can make their own determination on their accounts as reflected on their statements (Schroeder, R. G., Clark, M. W., & Cathey, J. M.,2005). Among the most commonly used pension plans are defined benefit and defined contribution plans. If we choose a defined benefit plan we will get credit for the number of years that we contribute to the plan. Contributions are generally small and based on a percentage of our salary. Our company will invest the contributions to ensure that they will be able to cover the benefits that need to be paid out in the future. After we retire, the amount...
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