Q.12. Curriculum. EOC.
In calculating the difference in returns, they have taken it as actual return - (discount rate * plan assets at beginning of year aka "incorporated in net interest income/expense) "
Whereas I had taken the discount rate* NPL
What am I missing?
I’ll try and explain keeping IFRS in mind…
Interest expense is the Beginning PBO x disc rate
Interest Income is Beginning FV of Plan asset x disc rate (this can also viewed as the expected return on the plan asset)
Hence, here we can net off the PBO and the plan asset to get the funded status and then get the int exp/inc as the funded status x disc rate.
However, at the end of the year, the plan assets in the trust would provide the actual return. This must now be accounted for.
This is done by taking the difference between the Actual return & the expected return ie ( the Beginning FV of Plan asset x disc rate) and transferring it to the OCI. Also, the acturial gains/losses would also be transfered to the OCI. These would remain there and not get amortized. This is what the question asks. Taking the disc rate x NPL would give the net int expense only.