The answer calculates Economic pension expense as $15 with the following formula:
Econ pension exp = Current service cost + interest cost - actual investment return
Econ pension exp = 63 +29 - 77 = 15
However, when I use an alternative formula I get a the same answer but with a negative number:
Your pension will cost you the Current service cost, payment for interest, then you get back as an adjustment actual investment return. Always think whether you are paying money or getting money.作者: Sportsman 时间: 2011-7-13 13:32
This would be the same if you use the alternate formula:
Change in funded status less employer's contribution = employer's contribution - change in funded status. The signs would be opposite. But you should be concerned only about the absolute amount. Because a positive number cannot mean something like "pension income" right. So just don't worry.作者: kingstongal 时间: 2011-7-13 13:32
Yes you can have a negative or positive pension expense, so be careful.作者: redskins44 时间: 2011-7-13 13:32
That is so intuitive ... thanks.
Sometimes I get so bog down with the signs as if there is something hidden when in reality I should be checking my common sense ...作者: busterbluth 时间: 2011-7-13 13:32
Yes, quite correct. I think sticking to one way of interpreting the expense would be less confusing - otherwise we'd be prone to negation errors.
In the text, Schweser solves it the way I did above but in #5 they used a separate formula causing a non-negative number ... but all in all they seem to mean current economic expense is down by $15. Had the actual investment return been greater the expense would be up by the higher return difference.
