Schweser says: total periodic pension cost represents the true cost of the pension. If the firm’s contributions exceed its true pension expense we add the shortfall back to operating cash flow and subtract the shortfall from financing cash flow. Why are they using periodic pension cost and pension expense as the same thing? Formulas wise we have: Pension expense = service cost + interest cost - expected return on assets. Periodic pension cost=contributions - (ending funded status - begin funded status)
Any answer to this please?
This is how I interrupt this messy topic we call pensions:
Pension cost is a cash flow thing. Employee contributions + return on retirement assets - cash payments to retired employees. If positive, you have over accured your liabilities. Add this back as a CFO inflow. If negative, you under accrued your liability, subtract this back as a CFF outflow (essentially financed the liability)
Pension expense is an income statement thing , i.e you record as incurred (when pensions are earned they are accured as an expense even though the CF occurs in the future)
I still don’t get it. In schweser page 112 LOS 20 f they seem to be using pension cost and pension expense interchangeably. “If contributions exceed total pension cost… Similar to excess principal payment on a loan… Conversely, if pension expense exceeds contributions the difference can be viewed as a source of borrowing…”???
Please refer to example 6 Curriculum. If explain clearly in this example
Sounds like it’s not worded corrected in schweser, I looked at the errata and no updates were made. Perhaps it’s worth a moment of your time to contact them?