Could someone assist in explaining the difference in calculation for Concept checker #3 and #5 in the 2013 Scheweser study session #6 on pages 119 and 120. The questions are both asking for total pension expense and make no discernible distinction in the phrasing of the question. #3 utilizes expected return, #5 utilizes actual return. It would seem like #5 is asking for “economic pension expense” although Schweser does not seem to refer to this term.
Any thoughts would be appreciated.
Because Question 5 asks for ‘Year End’, so you use the Actual Return I think, whereas, question 3 says, ‘reported expense’.
I think that’s why. But not sure.
But overall, that same 3 and 5 threw me for a loop too, and I’m still irate about it. It’s peculiar how a idiosyncratic detail for a esoteric exam can get to me
Anybody else can chime in?
This exact question is also perplexing me as well. Can anyone else shed some light? Thanks.
#3 asks for reported pension expense, use expected return
#5 asks Total Pension Expense which is another name for Economic pension expense, use actual return
havent seen Schweser FRA, but it looks like reported pension expense is pension expense on the income statement while total pension expense is periodic pension cost (recognized in IS + OCI)
Economic pension expense was there last year (2012). It’s not there in 2013. I don’t have Schweser 2013 but if you’re referring to Schweser 2013 then it looks like they haven’t updated their books properly.
Same problem , I need to know (WHY & HOW).
good find, i have been struggling with this and have since been looking at the questions and trying to reconcile with CFAI readings.
The way i did the question first was that i did the employer contributions - (end funded status - beg funded status
and it gave the answer , 15. ( 48 - 120 +87)
I’m taking a wild guess here and it could be an instance of the blind leading the blind but I reckon that there is some difference between reported periodic expense and total expense.
I think periodic expense is what is reported on PnL (explains the use of expected return netted against the interest cost).
I think Total includes the OCI component!!
TLDR: i agree with brightstar!
Would love for a dude whose got a CPA/CA or someone else who is well versed in the area to chime in
Hey guys, further to the above…
I have broken down the components of the total expense into OCI and PnL and got the same answer… Scheweser seem to have jumped the gun:
PNL = 63 +29 - 32
Using GAAP, the 32 is the expected return (PNL), 63 is the service cost, 29 is the interest cost.
OCI = Actual Return - expected return
= 77- 32 = 45
Total expense= PnL + OCI = 63 +29 - 32 - 45 = 15
Can anyone confirm?
Has anyone read pensions from the curriculum and understood it?
At best, I have gathered bits and pieces. If they drag us to deep end of the pool though, I’ll drown for sure. There’s just too much information fragmentation in that reading. They’ve redone the entire reading this year, so I’m sure we’re the guinea pigs.
eported pension expense.(i.e. P&L)
total pension expense (i.e. P&L + OCI).
I was also confused, but I believe the below is correct
Total Periodic Pension Cost = Contributions - the change in Funded Status
The above calculation is the same under IFRS and U.S GAAP. Change in the funded status always uses ACTUAL return on plan assets
* US GAAP - Pension expense = service cost+Int cost-EXPECTED return on plan assets. This goes on income statement
* IFRS - Pension expense = service cost +/- Net int expense/income+prior service cost. This goes on the income statement.
Actuarial gain and losses go to OCI.
Can anyone confirm/comment?
One is their estimate before it occurs.
doubt this distinction will show up to bust
heads on the exam.