At a recent board meeting, Elbe’s management disclosed the information concerning the company’s pension plan, based on a recent actuarial revaluation. Elbe also announced it was going to change its policy of deferring actuarial gains and losses and instead recognize them as they arise. Elbe’s management believes this will increase transparency going forward and that the improved disclosure will help the stock price.
before Revaluation after Revaluation
Present value of defined benefit obligation 40,060 45,200
Fair value of plan assets 29,522 29,522
Unrecognized actuarial losses 1,500 4,250
After the actuarial revaluation of the pension plan and the change in accounting policy related to actuarial gains and losses, the net pension liability (in ‘000s) Elbe would report on its statement of financial position will be closest to:
You are missing unrecognized prior service cost which you would add (decreases the liability or increases the asset) to your funded status (which now contains the adjustment for unrecognized losses)
You are missing unrecognized prior service cost which you would add (decreases the liability or increases the asset) to your funded status (which now contains the adjustment for unrecognized losses)
Since they’re IFRS, they’re going to report the adjusted funded status (not the same as in US). The liability reported should be 45200 + unrecognized losses - assets = A. If the answer is truly B, I’m having a hard time getting there from the info provided.
If under GAAP, the answer would be C. The company has the option in IFRS to recognize changes immediately or to smooth them out as the actuarial loss goes outside of the 10% corridor (in this case the 5,140 difference would be outside of the corridor). If they recognize them immediately, they can put them in OCI.
Where I get lost, based on the data from the OP, is how recognizing the loss immediately would affect the liability (it would be the offset in OCI to an increased pension liability). Remember the PBO has the actual effects accounted for in it - when you report in IFRS you are merely backing out the impacts of actuarial changes. In this case, the actuarial loss increased by 5140 but the unrecognized gain only increased by 2750 - was the difference attributable to vested employees and expensed?
yes the unrecognized past service cost of $433 is missing from the problem.
Since they report in IFRS the funded status is reduced by unrecognised psc and unrecognised actuarial losses (anything they decide to defer).
They state that they are going to recognize actuarial losses as they occur so they will not be deferring any of them. That means there are none to reduce the funded status.
You subtract the unrecognized past service cost of $433 only.