{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

NOTES ON CRITICAL POINTS OF PENSION ACCOUNTING

NOTES ON CRITICAL POINTS OF PENSION ACCOUNTING - Note on...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Note on the critical aspects of Pension Accounting We are dealing with defined benefit pension plan where the benefits are pre- defined and are based on future salaries. Actuaries compute the respective numbers by applying a present value technique. Here, PBO and fair value of plan assets are the elements of interest. The components of pension expense can be briefly summarized as follows: 1. Service cost: An additional future benefit that arises out of service rendered by employees in the current fiscal period. The PV of such benefit is taken as the service cost with a corresponding increase in projected benefit obligation (PBO) - Dr. Pension Expense (for service cost) and Cr. PBO. 2. Interest cost: Interest would accumulate on PBO like any other outstanding long-term debt. The interest calculated by applying the settlement rate on the beginning PBO, which would form a part of periodic pension expense with a simultaneous increase of PBO - Dr. Pension Expense (for interest cost) and Cr. PBO. 3. Expected return on plan asset: Expected return in dollar terms is computed by applying an expected rate of return on the beginning balance of plan assets. Expected return is a negative component of pension expense and thus, deducted from pension expense as a credit. The corresponding entries are two-fold: one is the difference between actual and expected return, which would be recorded as an asset gain or loss in OCI (G/L)
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern