I thought pension expense subtracted out EXPECTED return on assets. Does anyone know why Schweser subtracted out ACTUAL returns on assets to calculate the 2007 pension expense on the top of page 192?
i didn’t look but is it because you are calculating the economic pension expense instead?
I believe it was just to demonstrate the basic idea of pension expense. Using expected rather than actual is a smoothing mechanism. Later on they say to use expected and NOT actual.
yea, you use actual only if you want to eliminate management smoothing.
Page-192 just demonstrates the basic idea of Pension Expense not worrying too much on smoothing and corridor amounts and bla… But since US-GAAP allows smoothing by allowing the use of Expected returns on planned assets rather the actual returns, it gets a lot more messier later on in the lesson.