Thanks, I have figured the Fund Status and Employee Contributions out by spending an hour reading the horribly written CFA materials. It all depends on if you look at Asset or Liability side.
It is the expected return which gives me the problem.
I agree with you, I don’t think expected return should be related to calculation of PPC. I think the anwer of the mock for this question is WRONG and Misleading.
The question is asking for “periodic pension cost” so you only need to get the costs that are reported on P&L.
Under GAAP, period pension cost (Elan’s Guide call this “pension expense”) is
Current service cost + discount % PBO - expected return % x asset + amortized past service cost while
“total period pension cost” consists of 2 parts
(P&L) Current service cost + discount % x PBO - expected return % x asset + amortized past service cost
(OCI) expected return % x asset - actual return on asset + acturial loss - acturial gain
So expected return% has an impact on pension expense but NOT total pension cost.
To avoid confusion: _ costs _ are not reported on P&L; expenses are reported on P&L. Costs and expenses are very different beasts under accrual accounting.
I agree with you. As if CFAI intentially wrote it like that to confuse the candidates.
I do recall seeing them use the terms sloppily. Alas.
Thank you both
My pleasure.