The pension note disclosure for Deutsche Lufthansa AG for the year ended December 31, 2008, is provided in the chapter.
Instructions
Using the information from this disclosure, answer the following questions.
(a) If Lufthansa could adopt the immediate recognition approach, determine what the amounts recognized as the accrued benefit liability would be for the years ended December 31, 2007, and 2008. Reconcile this balance with the balance recognized under the deferral and amortization approach. (Assume that the asset benefit obligation would be the same under the projected benefit approach and the actuarial funding approach.) Calculate the expense under the immediate recognition approach for 2008. Show a reconciliation of the opening and closing balances of the deficit balance under the immediate recognition approach for 2008.
(b) Given the information in part (a), discuss the impact of the different reporting approaches on the statement of financial position and the profit or loss statement for the 2008 fiscal year end.
Explain what has caused the major differences in both approaches. Which method do you
believe most faithfully represents the pension plans in the financial reports for the company?
What is the cash flow required for the company in 2008 and how does this relate to the statement presentation?
(c) Review the assumptions that Lufthansa has used for the discount rate and expected return on the plan assets. How does the company determine the expected rate of return on the plan assets? Comment on the trends over the past few years, and whether you believe these are fair and reasonable assumptions.