For Question 5 on page 144: 5. The amount of pension expense (income) reported on EDC’s US GAAP income statement for the year ended 30 April 2006 is: a. -19 b. -7 c. -5 d. 33 The correct answer is (b)$-7. However, I noticed that the date is “30 April 2006”, and problem 4 uses this same date, and they used a different methodolgy. For problem 4, they eliminated all the unrecognized gains/costs/transition assets. For problem 5, OTOH, they simply used the figures given at the very bottom of the “COMPONENTS OF NET PERIODIC PENSION BENEFIT (INCOME) EXPENSE”, without eliminating the unrecognized prior service costs/netAssets. Q1: Why is this adjustment not made here, but it was made in question 4? When do you know to make the adjustment? Q2: What are the similarities/differences between the market-related plan asset value and the fair value of plan assets? I know that the former has a “5-year-rolling-average” adjustment made to it, to help smooth it out. Q3: Why does the expected return on assets affect the pension expense but not the PBO? The PBO is the cumulative pension expenses, after all. Also, the *actual* return on assets is what actually affects the pension expenses, but not really the *expected*. What do you think? Pensions suck! I never fully grasped the financial statement adjustments for this, but I feel quite comfortable with many other aspects of this. Such a dry and boring topic!
someone please help me here.
Question 4 is different b/c it says to assume SFAS 158 is in effect - so you would use the new rules. However, I can’t figure out how they get to -7. The book is singularly unhelpful. Does anyone know how they got this answer?
Q3 - The PBO is not simply the cumulative pension expense, as you can see from the calculations. The expected return on plan assets does not affect the PBO because we already add the “actual” return on plan assets to the Plan Assets. The sum of PBO and Plan Assets is the funded status. Even though “expected” and “actual” returns are different, we would still be double counting asset returns in the calc. of funded status if we also deducted expected return from the PBO. Not sure if that helps you. I am a designated accountant…but still hate pensions.