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General Motors and Ford Post-Retirement Benefits Accounting

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General Motors and Ford Post-Retirement Benefits Accounting


Significance of the study

Accounting and Reporting of Post-retirement Benefits is an important area of study since the end-users, who include the prospective employees as well as the prospective investors, will be able to make worthwhile decisions concerning a particular company.

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Introduction to Accounting and Reporting of Post-retirement Benefits

Post-retirement Benefit is a term commonly used to describe the benefits that any given company provides to its employees. Benefits such as pensions, life as well health insurance exist as typical examples of potential benefits to a company’s employees. Right after the employee’s retirement, the employee enjoys a financed living. These finances in most instances come from the pension plan. To come up with the aggregate pension, the salary and the period in which an employee worked for a company are taken into account.

Traditionally, SSAP 24 was commonly used as a framework for retirement benefits accounting treatment. FRS 17 has contemporarily emerged to replace the traditional retirement benefits accounting framework. However, in the U.S, GAAP is used to account for retirement benefit plans. After the post-retirement benefits are accounted for, they are reported in the financial statements. While the net expense of the post-retirement benefit is reported on the income statement, the plan’s asset and liability as well as other accumulated incomes are reported on the balance sheet.

Thesis Statement

This paper is to assess how Accounting and Reporting of Post-retirement Benefits is implemented in both General Motors and Ford.

Review of the literature on Accounting and Reporting of Post-retirement Benefits

In the modern days, according to Kieso, Weygandt & Warfield (2009), there are no authoritative accounting standards that have been established specifically to be applied to pension plans. Since the year 1977, defined benefit pension boards works hand in hand with the government’s office of labor as well as actuarial practitioners in an effort towards mitigating the conflicts, costs as well as duplication of information when preparing financial reports.

The accounting standards that are currently being used to account for and report the post-retirement benefits are applicable not only in the private sector but also to plans run by the state as well as a local government wing of the government (Matt, 2008).

The actuarial present value of an employee’s benefit is, according to Warren, Reeve & Duchac (2006), the primary information that should be reported. As such, this actuarial present value is determined based on the underlying assumption that the plan exists as an entity, which is ongoing.

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Warren, Reeve & Duchac (2006), asserts that the plan’s accumulated benefits are the benefit payments to be made in the future. Kieso, Weygandt & Warfield (2009) supports this by indicating that the accumulated plan benefits are attributable under the provisions stipulated with regard to the services already rendered by the employee. The measurement of these benefits is based primarily on the history of the employee with regard to the pay as well as the services he rendered.

The services rendered in the future by the employee are taken into account only when the expected eligibility of an employee for the benefits is being determined. In order to measure the accumulated benefit plan’s actuarial present value, the measure of an employee’s accumulated benefits is usually discounted for interest. In addition to this, the measure is usually adjusted in order to reflect the likelihood of them being paid. The assumptions used in accounting for these benefits rest on the judgment of the actuary (Kieso, Weygandt & Warfield, 2009)FF.

The costs and the liabilities associated with the pension, which have been determined with the use of a specified accrued benefit valuation, ought to be captured in a supplementary statement.

Methodology of the study

The method to be used in the collection of data regarding Accounting and Reporting of Post-retirement Benefits at General Motors and Ford will be the internet and the assessment of financial statements of the companies. The rationale of using these in data collection is that; information extracted by the researcher will depict the actual state of affairs of each company with regard to how to post-retirement benefits are accounted for and reported.

Data Analysis

In order to ensure that there is a derivation of quality information and drawing conclusions whose validity is not questionable, several methods will be used. These will include graphical techniques as well as statistical analysis. With regard to statistical analysis, computers will be used and as such, the efficacy, validity as well as accuracy of the information will be facilitated. SPSS software will be used for data analysis.

Period of the study

It will take a period of one month to complete the entire study. During this time, the researcher will first seek permission to assess the financial statements of the companies. After permission is granted, the researcher will scrutinize these reports while consulting the internet. The extracted data will be compiled and thereafter, analysis of the financial data will be done. Presentation of the findings will be done in the form of reports

Limitations of the study

Since this is a large project, that is, it will require a lot of traveling and related activities, a large amount of financial resources will be used to cover the expenses and as such, lack of sufficient finances will be considered as the main hurdle to overcome towards the successful completion of the research.

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Profile of the Companies

General Motors

GM, as it is commonly known, is the largest manufacturer of motor vehicles in the world. While the company is operating in about 32 countries globally, its vehicles are sold to over 200 countries across the world. It is an American Company with its headquarters in Detroit. According to research conducted by Matt (2008), the number of people employed by the company is approximately 200, 000. The most renowned General Motors brands include Vauxhall and Cadillac among other brands. The company began announcing its annual profits in mid-2010. In that year, it reported a profit of $4.7 billion.

The company participates in the society in an effort towards accomplishing its corporate social responsibility policies. For instance, the company participates in the World Touring Car Championship as the main sponsors (Matt, 2008).

General Motors is the largest manufacturer of automobiles, not only in the U.S but also in the whole world. The company also manufactures high technology motorcycles mainly used in Motorsports.


Just like General Motors, Ford is an American motor vehicle manufacturer with its head offices in Detroit. The company was founded in early 1903 and is operating in about 93 countries across the world. The most renowned brands include Lincoln and ford. By 2008, it was established that the number of people employed by ford was approximately 213,000. The Company reported revenues worth $118 billion in 2009 while the profits amounted to $6.6 billion. As the company’s social corporate responsibility, the company initiates projects aimed at fighting human activities giving rise to global warming (Matt, 2008).

The company is the second biggest automobile manufacturers after General Motors. However, in the near past, it has tried to implement strategies that would see it become the market leader in the U.S but General Motors as its competitor keeps on moving in an upward trend. Apart from manufacturing luxury cars, they also manufacture vehicles used in competitions such as grand prix competitions.


General Motors

General Motors account for their Post-retirement Benefit plans based on actuarial concept. With regard to the estimation of the rate of discount for the U.S plans, the company utilizes an integrative process in which a hypothetical reinvestment in a high quality bond portfolio is the underlying basis.

The reinvestment component is usually incorporated into the company’s methodology due to the fact that it is non feasible, taking into account the scope of time as well as the magnitude over which the company Post-retirement Benefit plan obligations are spread in an effort towards the accomplishment of the entire defeasance.

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The estimates of the trend rate in the health care costs are established taking the cost data of the historical retirees into account. The Company’s net expense of the post retirement benefit is captured in the income statement. On the other hand, the assets and liabilities of the plan are reported on the balance sheet.


The measurement of liabilities, obligations as well as costs, which are associated with other relevant post retirement benefits of the plan requires that the company should utilize the present value estimates with regard to the projected payments to be made in the future to all the employees (Warren, 2012). As such, the potential events, which are likely to occur in the future and which may have a significant effect on the future payment’s timing as well as amount are usually taken into account. In establishing the estimates, the company uses several approaches as well as assumptions which include; discount rates, mortality rates, retirement rates and salary growth among other approaches.

The cost trend assumptions associated with the company’s health care are established putting the historical data of the cost as well as the near term outlook into consideration. Just like General Motors, the Company’s net expense of the post retirement benefit is captured in the income statements. On the other hand, the assets and liabilities of the plan are reported on the balance sheet (Warren, 2012).


From this analysis, it is clear that Post-retirement Benefit is a vital aspect of any company and as such, it must be accounted for and ultimately reported. In addition to this, SSAP 24 was commonly used in the past as a framework for retirement benefits accounting treatment.

However, as modernity took over, FRS 17 was advocated but in the U.S, the GAPP accounting system is used for post retirement plans accounting and reporting. With reference to the way Ford and General Motors Companies account and report Post-retirement Benefits, it is a trend that several accounting approaches and reporting systems are used.

Some of the major accounting assumptions and approaches used includes; discount rates and retirement rates among others. Income statements and balance sheets are the major ways in which accounted Post-retirement Benefit information is reported.


Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2009). Intermediate accounting. London, UK: John Wiley and Sons.

Matt, D. 2008. Accounting and Reporting of Post-retirement Benefits at General Motors. Journal of financial reporting, 5 (2), 54-58.

Warren, C. S. (2012). Accounting and reporting at Ford Motors. Journal of financial reporting, 9 (6), 23-34.

Warren, C. S., Reeve, J. M., & Duchac, J. E. (2006). Accounting. Oklahoma, OK: Cengage Learning.

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