Are contributions to the pension also accounted in the P&L statement?
No, I don’t believe so.
I would see the contribution double entry as [Increase Contribution (B/S) , Decrease Cash (B/S)]
There are two ways of calculating costs in P&L. One way uses Contributions ie Total pension costs = Contributions plus funded status.
However also look at this: http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91333131
I would think it’s more correct to say Total Periodic Pension Cost = Contributions minus Change In Funded Status.
And even then, it’s worth noting this method wouldn’t calculate costs in P&L, it would calculate costs in P&L and OCI.
To the original question, the Total Periodic Pension Cost equation is, in effect, excluding the cost of Contributions. They are nothing to do with the P&L items we consider on the exam (interest expense, service costs) etc.
Then why do we calculatue Contributions - Change in Funded Status to calculate the periodic cost?
IF change in the funded status is 100, that should be the total periodic cost for the year, right?
Ending PBO anyways accounts for current cost, past service costs, and all other charges.
Think about the formula for change in funded status. It already Includes a (+ Contributions) term, so Contributions - (Change in Funded Status) will net contributions to zero.
Ok makes sense now. Thanks!
And to clarify, no, if the change in funded status is 100, that is not the total periodic pension cost.
Use the formula we’ve discussed, Contrib - change in funded status , and you will arrive at total periodic pension cost.
Ok what is the difference between periodic costs and periodic expense or they are both the same?
Expense is what goes in P&L, cost is (basically) the total cost to the firm on its pension plan (change in funded status adjusted for contributions).
This was really confusing for me on the mock as one question said calculate Periodic Pension Cost and then the next one said calculate Total Periodic Pension Cost.
But yes, based on what I’ve seen in the mock and read elsewhere, Periodic Pension Cost/Pension Expense are the costs that hit the P&L.