Hi all, I only found one post about that topic which could not help me much. Could anybody help me with that? I understand that a minimum liability allowance has to be shown when ABO > FV of Plan Assets, and this allowance means that we have to have at least this difference as a Liability. So suppose we have ABO = 500, FV = 450, and that the BS shows a net pension liability of 10. Then we have to add (500 - 450) -10 = 40 to this liability. My question is: how do you write it? You credit your liability of 40. How do you offset that? Schweser mentions intangible asset and / or a charge in Comprehensive Income in Equity, but I don’t get it… Thanks!
well for the entry to offset a liability i am guessing that it is a charge to equity = like a direct expense to equity, or it can also be a contra asset, i think ?
fyi When an additional liability is recorded, it is offset by recognizing an intangible asset not exceeding the amount of unamortized prior service cost. If it does exceed that amount, the excess is shown as a reduction of stockholders’ equity in an account called net loss not recognized as pension expense. Assume an accumulated benefit obligation of $500,000, and a fair value of pension plan assets of $400,000, leaving a minimum pension liability of $100,000. If we assume that the accrued pension liability is $40,000, then the additional pension liability is $60,000. The unamortized prior service cost is assumed to be $50,000. The journal entry to record the additional liability is: Intangible Asset - Pension Plan 50,000 Minimum Pension Liability Adjustment 10,000 Additional Pension Liability 60,000