Question

11. What adjustment needs to be made on the Statement of Cash Flows relating to

accounting for defined benefit pension plans?

Answer 1

Cash flow statement shows movement of cash inflow and cash outflow from operating, financing and investment activity.

Activities which do not have any impact on cash movement are not shown in cash flow statement.

Accounting for defined benefit obligation is a mandatory provision required to be made as per generally accepted accounting principle.

The transaction involve booking of expense as debit and credit the provision as long/short term on the other hand.

There is no movement of cash in such transaction and hence no adjustment is required to be made in cash flow statement.