FRA Employee Compensation

Taycfa · May 17, 2019, 4:14am

Hi,

How is the net interest expense calculated using GAAP?
In Example 2 in the book, to calculate net interest expense, we are multiplying the discount rate with the beginning PVDBO but in other questions we are multiplying the discount rate with NPL. How do we know when to use which method?

Sagacious · May 17, 2019, 4:30am

USGAAP- beginning pension obligation

IFRS- net pension liability.

So pay attention to accounting standard being followed by the company.

Taycfa · May 17, 2019, 5:29am

Thanks!

Taycfa · May 17, 2019, 5:43am

In example 2, I don’t see GAAP written anywhere unless I have missed it

Sagacious · May 17, 2019, 6:19am

When calculating pbo using unit credit method ( example-2), int exp will be same. Because return on assets does not come into play.

Taycfa · May 17, 2019, 6:29am

Oh ok. So for GAAP the formula to calculate net interest exp is Bg. PVDBO x Discount rate - Bg. FVPA x Expected return?

Sagacious · May 17, 2019, 6:34am

Yes.

Taycfa · May 17, 2019, 6:51am

Great. Thanks so much!

tarun · May 18, 2019, 12:11pm

Net interest expense = opening funded status x discount rate

please see the below link

Taycfa · May 18, 2019, 5:57pm

Thanks!