Past Service Cost. US GAAP


According to Schweser:

Past Service Cost: “OCI, amortized over its life” under US GAAP and under P&L for IFRS

Lets say we have a past Service cost of 1000 and a 5 year life.

I would have written that as 200 under OCI for US GAAP and 1000 under P&L for IFRS.

But from the topic tests they are adding “Amortization of Past Service Cost” under P&L side for US GAAP.

What have I missunderstood?

you put 1000 in this year’s OCI but then amortize 200 to P&L every year for the next 5 years

Are you 100% sure about this?

In the Schweser text it seams to me that they would note this down at 200 under OCI and not do anything under P&L?

taken straight out of the curriculum:

“Similar to IFRS, under US GAAP current service cost is recognised in P&L. However, under US GAAP, past service costs are reported in OCI in the period in which the change giving rise to the cost occurs. In subsequent periods , these past service costs are amortised to P&L over the average service lives of the affected employees.”

(Institute 79)

Institute, CFA. 2017 CFA Level II Volume 2 Financial Reporting and Analysis. CFA Institute, 07/2016. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

unless I’m misinterpreting something

Thanks a lot.

So if we think about the example above would we in the period it occurs do:

OCI: 1000

P&L: 0

Next period:

OCI: 1000-200 = 800

P&L= 200

After that:

OCI = 800-200 = 600

P&L: 200 or (200+200= 400?)


most probably yes, I haven’t seen an example question for this anywhere so far (amortization schedule of past service costs)

edit: no, for the 3rd year, the amount under P&L is still 200, it’s an expense.

and put a negative sign on the OCI, it’s a cost, not income.

Yes, i think of it as cost on OCI.

Thanks for your help on this! Hope preparation is going well.