A little confused on why remeasurement is not being accounted for in the following question:
FV Assets 290
Service Cost 30
Sponsor Contributions 35
Benefits paid to reitrees 20
Actual Return Plan Assets 5
Expexted Return plan assets 30
Service life 20Y
Under IFRS what is the pension expense?
I calculate as:
Service cost (30) + Int Expense (290-250 = NPA of 40. Therefore 40x0.10=4 GAIN) + Remesaurement (Difference between Actual & discount return plan assets = 5 - 29 = -24)
Therefore overall cost is
30 - 4 -24 = 2 (which obviously doesnt look right)
The answer has suggested we only take the Service cost and net interest.
therefore 30-4=26 final answer.
Why is the remeasurement not included here?
Have a look at this table of IFRS vs GAAP differences.
Under IFRS remeasurement goes to OCI and is never amortized (so it never appears in P&L pension cost).
It’s important that you differentiate between pension COST and pension EXPENSE. They’re not the same. Pension cost is everything. Pension expense is only what gets reported on the income statement (P&L), which is different under IFRS vs US GAAP. As krok mentioned, remeasurement doesn’t hit the P&L under IFRS. Under US GAAP, it is usually initially recognized in OCI, then amortized to the P&L via the corridor method.
Ah thats it. The small subtly. So if we are to calculate the cost we will include all components. Expense we ignore anything through OCI on either GAAP or IFRS.
So in order words, ppc in P&L = pension expense.