# FRA - case Atlantic Preserver from Practice assessment questions

Hi all,

Question number 5 of this set asks us to calculate 2013’s periodic pension cost. I got \$976 but the answer is \$2267. The difference is they don’t include the difference between the actual return on plan assets and the expected return on plan assets in the calculation.I am confused because the curriculum says this difference is one component of periodic pension costs (US GAAP).

Here are the inputs (in \$ thousands)

• current service costs: 1,151

• Interest costs: 5,441

• Actual return on plan assets: 5,888

• Expected return on plan assets : 4,597

• Amortization of past service costs: 272

my calculation : current service costs + armortization of past services costs + interest costs - expected return on plan assets (because we are calculating an obligation) - (Actual return on plan assets - expected returns on plan assets) = 1151 + 272 + 5441 - 4597 - (5888-4597) = 976

The CFAI’s answer excluded the last item (in the parenthese) so they end up with 2,267.

Was I missing something? Maybe we should only include the difference between the actual return and expected return when it is immediately recognized??

Thanks

TLH

Looks like they’re asking you to calculate Periodic Pension Expense (the one that appears on the Income Statement)

So under GAAP: Current Service Cost + Interest Cost - Expectured Return On Plan Assets + Amort of Past Service Costs.

= 1151 + 5441 - 4597 + 272 = 2267

Under Periodic Pension Cost (Actual - Expected Return) is included, but it is then sent to OCI and doesn’t appear in your Periodic Pension Expense (the portion appearing on P&L) unless amortized.

The exact question is " The amount of Atlantic Preserve’s 2013 periodic pension cost (in \$ thousands) is closest to:" .

in the CFAI curriculum they also say the actuarial gains and losses are “recognized immediately in P&L or, more commonly, recgonised in OCI and subsequently amortised to P&L using corridor or faster recognition method”.

I am still confused because it can be recognized in P&L immediately :(.

@Lake House : it will be better if the question add explanation “Company choose *NOT TO* immediately recognize the actuarial loss”

@jounin83: Yes, they should have added such the assumptions there. Do you notice that in the set’s information they even mention about the difference between actual and expected returns?

What should we do if we encounter this situation in the real exam? I am confused. I am thinking to drop the CFAI a line to ask about this.

I will only use *that* for OCI in IFRS

I was just about to ask the same. So, what terminology should we expect on exam? Shall we understand “periodic pensions cost” or “net periodic periodic pension cost” as periodic pension expense reported in P&L ?

By the way, in the same case of Atlantic Preserve, in Question 6 while calculating TOTAL periodic pension cost it does not account for past service costs amortization.

Am I correct to assume that under US GAAP only past service costs ARISEN IN CURRENT PERIOD are included in total periodic pension cost, NOT the amortization of past service costs arisen in previous periods?

Thanks.