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mdfb79

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tT
发表于 2011-7-13 13:19 | 只看该作者

Pension Accpunting

decrease, expected, increase, service, return
All else equal, which stmt descrbes the impact of an increase in expected return on plan assets?
A. increase in plan assets
B. decrease in PBO and increase in service cost
c. Increase in net income

Answer is C.
Can some one explan ...how?

Thanks,
Varun Darji
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kingstongal

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2#
发表于 2011-7-13 13:19 | 只看该作者
Increase in expected returns will decrease your pension expense thus increasing your net income.

Do remember pension expense = service cost + interest cost + past service cost - expected return on plan assets +- actuarial gains and losses

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wxs1986

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3#
发表于 2011-7-13 13:19 | 只看该作者
Reported Pension Expense = Current Service + Current Interest - Expected Return in Plan Assets

If Plan assets increases - Reported Pension Expense decreases, so Net Income increases.

Increase in Plan assets (option A) only happens due to the Actual return on Plan Assets, not due to expected return on Plan assets.

PBO is not affected by Expected return on Plan assets. Neither is Service Cost.

CP

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tarunajwani

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4#
发表于 2011-7-13 13:19 | 只看该作者
Increase in Expected return on plan assets will lower your pension expense and a lower pension expense will increase your net income.

Plan assets are calculated using "actual returns" hence A isn't right
PBO/Service Cost isn't directly related to return on assets thus B isn't right.

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