GAAP - Past Service Cost Amortization

CFA Level II
#1

When they say something is amortized over time from OCI to the P&L…does that mean it goes from below Net Income, onto the income statement?

I am looking at GAAP rules for “Past Service Costs” of pensions…and it originally gets booked in OCI, then gets amortized to the P&L.

I’m assuming this means, as example, that -$100 would be booked in OCI as the past cost, and over ten years -$10 would show up each yaer on the income statement in the pension expense?

Is that correct thinking?

#2

I believe that is correct. So in the year that Prior Service Costs are incurred, a debit balance of 100 (your example) would be applied to OCI-PSC (equity has a natural credit balane, so -100 in your example). Then, this amout would be amortized over the determined life of the PSCs.

If I recall correctly, this amortization would begin the year that the PSCs are incurred; so at end of year 1, 90 in PSC and 10 of the PSC put into pension expense for the period.

#3

Yes: a portion of it gets pulled out of OCI each year and run through the income statement, much the same as unrealized gains and losses on available-for-sale securities: when they’re sold, the net unrealized gain/loss is pulled from OCI and run through the income statement.

#4

perfect, thanks for the confirming

#5

My pleasure.

#6

WTF S2000, how do you know he wasn’t thanking me?

So typical-this is why I do not trust magicians.

#7

THANK YOU BOTH

lol