# Pension Question

Hi All, FinQuiz’s Morning Mock FRA Pension question #26 asks to calculate pension cost reported in P&L (under IFRS) giving you the following:

Current Service Cost \$250, Past costs \$150, Beg PBO \$48,000, Beg Plan Assets \$45,000, discount rate 6.5%.

My understanding is under IFRS, pension cost in P&L = current service costs + past service costs + (funded status * discount rate) = 250+150+[(45,000-48,000)*.065] = \$205

The answer sheet shows the calculation as 250+150+[(48,000-45,000)*.065] = \$595 (they reverse the PBO & plan assets in calculating funded status)…

Which of these is right? I feel like FinQuiz is wrong. Many thanks

Anyone? Sup Dude.

It seems wrong, but it is right. When calculating the IFRS interest expense in the P+L you should switch the sign on the result from the traditional way you calculate beginning funded status. Kinda counter intuitive, but:

• If the plan is reporting a liability, interest EXPENSE is reported
• If the plan is reporting an asset, interest INCOME is reported

Traditional way: 45,000 (Beginning plan assets) - 48,000 (Beginning funded status) = -3,000 (an underfunded plan, a liability)

Since we have a liability, the P+L will report a positive interest expense. The way you calculated would actually reduce the total P+L expense.

Hope this helps.