Pension Cost Formulas (IFRS & GAAP)

CFA Level II
#1

I feel this could be easy if I can just get all 4 formulas on a flash card. I’m not great at this section, but would anyone know the 4 formulas for:

  1. For IFRS, Periodic Pension Cost

  2. For IFRS, TOTAL Periodic Pension Cost

  3. For GAAP, Periodic Pension Cost

  4. For GAAP, TOTAL Periodic Pension Cost

#2

Total periodic pension cost is the same under IFRS and US GAAP.

  • Current servise cost

  • Past service cost

  • Interest cost

  • Actual return on plan assets

-/+ Actuarial gain / losses

= Total periodic pension cost

***************************************************************************************************

Under IFRS the amount to be recognized on the IS:

  • Current service cost

  • Past service cost

  • Discount rate * (Beginning pension obligation - Beginning plan assets)

***************************************************************************************************

Under US GAAP the amount to be recognized on the IS:

  • Current service cost

  • Amortization of past service cost

  • Interest cost (= discount rate * beginning PBO)]

  • Expected return on plan assets (= expected return on plan assets * beginning plan assets)

+/- Amortization of remeasurements

#3

You sir, are a scholar and a gentleman.

#4

Could someone do the formulas for Planned assets and liability obligation?

#5

Beginning PBO

  • Current service cost

  • Past service cost

  • Interest cost

  • / + Actuarial gain / losses

  • Benefits paid

= Endind PBO

*************************************************************************************************

Beginning FV of plan assets

  • Actual return on plan assets

  • Employer contributions

  • Benefits paid

= Ending FV of plan assets

***********************************************************************************************

Note two things:

  1. the above formulas are valid for both IFRS and US GAAP;

  2. if there is employee contribution (quite unlikely according to me) it has to be included in the calculations.

#6

I thought these were periodic pension costs, no? I see Total Periodic Pension Cost as: (Ending Funded Status - Beginning Funded Status) - Employer contribution.

#7

Total periodic pension cost can be calculated with two formulas - the first one of my post and the other from your post. Both will lead to the same figure. The second and third formulas are for the amount to be recognized on the IS (periodic pension cost, periodic pension expense, name it as you want).

#8

I’m sorry but where is the top one recognized on?

#9

And is past service cost the same as plan amendments?

#10

Total periodic pension cost is recignized in both IS and OCI. Past service cost and plan amendments are the same. They occur when you retrospectively change the conditions of the plan.

#11

Thank you!! Best of luck Gebura.

#12

I don’t understand how Periodic Pension Cost and Total Periodic Pension Cost can both be recognized on the I/S? Is there two different figures in the I/S ?!?

#13

Total periodic pension cost has two parts:

  1. figure recognized on the IS and called “periodic pension cost” or “periodic pension expense”;

  2. the remaining sum is recognized in OCI.

Total periodic pension cost is the same under both US GAAP and IFRS, periodic pension cost differs.

#14

I’m confused. Can someone highlight which pension item is recorded on income statement and which is record on other comprehensive income for IFRS vs GAAP?

I would appreciate it.!!!

#15

blackscholesvol, we wrote at the same time. Read my previous post and let me now if it’s clear now.

#16

Thanks a lot Gebura, your posts on this matter are tremendously helpfull for me!

#17

I banged my head against the wall on this topic until I finally figured out that pension expense is the same as periodic pension cost…

Didn’t help that on one of my formula sheets (Elan - 2013), they had the formula for TOTAL periodic pension cost labeled as period pension cost…

Ahhh… good times…

#18

I realise that “pension expense” is that portion of cost recognised in the income statement, and that “TOTAL periodic pension cost” is the over all cost from both income statement and OCI commonly calculated with the old “ending funded status - employer contributions - beginning funded status”

…but what if the question just asks for “periodic pension cost” - what would you be inclined to include? The total figure? Just that figure recognised on the income statement?

#19

Where to add plan amendments and emplyee cintribution??

#20

I’ve met several possible “pair” names for pensions:

The part to be recognized into IS---------------The whole sum (IS and OCI)

Periodic pension cost---------------------------------Total periodic pension cost

Periodic pension expense---------------------------Periodic pension cost

Periodic pension cost---------------------------------Economic pension cost

There can be more variations and I think they’re all correct. The good thing is they won’t give you misleading question regarding names. On the exam if they ask me for “periodic pension cost” I would calculate first the expense that should be recognized in IS and if it doesn’t match one of the answers I’ll calculate the total sum.