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Unformatted text preview: would also be $100,000 debit .
In prac t ic e, t he use of a worksheet is rec ommended t o c alc ulat e pension expense and t he
balanc e of relat ed ac c ount s. Y ou should also be able t o c alc ulat e individual ac c ount balanc es,
inc luding expense, wit hout having t o c omplet e a worksheet . ABO c an be det ermined as shown in
Illust rat ion 19- 4 on page 1238 of your t ext book, and plan asset s c an be c alc ulat ed as
demonst rat ed in Illust rat ion 19- 5 on page 1240 of your t ext book. T hese worksheet s and
sc hedules will most likely not be given t o you on t he f inal exam, so you should bec ome f amiliar
wit h t hem now.
Corridor Amort izat ion of Net Ac t uarial Gains and Losses
One c omponent of pension expense is t he amort izat ion of net ac t uarial gains and losses.
Ac t uarial gains or losses st em f rom t wo sourc es:
A c hange in ac t uarial assumpt ion: Given new inf ormat ion, an ac t uary revises est imat es
about t he f ut ure, e.g., mort alit y rat es.
Experienc e gains or losses: T he ac t uary’s previous est imat es proved t o be inc orrec t .
Experienc e gains and losses oc c ur when t he ac t ual ret urn on plan asset s varies f rom t he
expec t ed ret urn or when ABO unexpec t edly inc reases or dec reases (e.g., t he union got
a larger wage inc rease t han est imat ed by t he ac t uary).
Ac t uarial gains and losses are ac c ount ed f or using a corridor approach. Apply t he c orridor
approac h as f ollows:
1. Calc ulat e t he “c orridor.” T ake 10% of t he beginning balanc e of t he great er of t he ABO or
plan asset s. T he c orridor is an ac c ept able margin of error. If t he ac t uarial gains or losses
st ay wit hin t he 10% margin, no f urt her ac t ion need be t aken. If t he gain or loss exc eeds
t he 10% margin, however, t he dif f erenc e must be amort ized as desc ribed below.
2. Compare t he c orridor t o t he beginning balanc e of t he ac t uarial gain or loss c olumn f rom
your worksheet .
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This note was uploaded on 02/05/2014 for the course BUS 370 taught by Professor Andreathomas during the Spring '13 term at Capital University.
- Spring '13