I’m working through EOC problems in Schweser for pensions. Two questions seem really similar both asking for the periodic pension cost however one calculates it as Current Service Cost + Interest Cost - Expected Return on Assets. The other calculates it as Current Service Cost + Interest Cost - ACTUAL Return on Assets. How do we know when to use each one?
Is one of the questions based on US GAAP, the other on IFRS?
It has to be because IFRS uses actual return and GAAP uses expected return (if I remember correctly).
IFRS is based on net principle while USGAAP is on gro principle. That’s the difference.
Hi ! There are two approaches that result un same answer but the one you are asking is: periodic pension cost = current service costs + interests costs + past service costs + actuarial losses - actuarial gains - ACTUAL return on plan assets this under IFRS and GAAP.
PAST SERVICE COSTS are the same both under IFRS and GAAP, dont let the curriculum confuse you:
Check this, for GAAP, to break the formula:
RECALL, that actuarial gains and losses under GAAP include the impact on the difference between the actual return on plan assets and the expected return on assets, then:
current service costs + past service costs + interest costs + actuarial losses (gains) other than those arising from differences between the expected and actual return on plan assets - (actual rerun on plan assets - expected return on plan assets) - expected return on plan assets. Then:
current service costs + past service costs + interest costs + actuarial losses (gains) other than those arising from differences between the expected and actual return on plan assets - actual rerun on plan assets… so basically:
periodic pension cost = current service costs + interests costs + past service costs + actuarial losses - actuarial gains - ACTUAL return on plan assets
Costs are costs, whether under US GAAP or IFRS, and include reduction by the actual return on plan assets.
How those costs are split between the income statement (pension _ expense _) and the balance sheet (OCI) differs from US GAAP to IFRS.