EOC Questions 9-10 post-employment benefits

CFA Level II FRA
#1

Hi,

For questions 9 and 10 in the post-employment compensation reading (Reading 14). Why do they add prior service cost to beginning balance PBO before calculating the interest expense? The addition shows up on the errata.

Also if it is calculated this way for questions 9 and 10, shouldn’t be calculated the same for question 8?

thanks!

#2

Past service cost is an adjustment to the beginning pension obligation, as it should be: it represents costs that should have been accumulated in the past.

#3

Thank you! I thought it was already included. Schweser does not do the adjustment so just wanted to make sure.

#4

Last thing, this would also apply to the interest cost in the total periodic pension cost calculation correct? Question 8 does not include but it may be another error in the curriculum.

thanks again!

#5

The interest cost is calculated on the new (revised, because of the past service cost) beginning pension obligation.

First add the past service cost to the beginning pension obligation, then compute the interest cost.