Net Pension Liability reported, although, liability, comprehend, balance

maratikus

Given: as at 12/31/2010 company X's pension plan is underfunded by 100M. Unrecognized actuarial gains total 20MM and unrecognized prior service cost is 30MM. What is the net pension liability reported on company X's balance sheet on 12/31/2010 using IFRS?

Ans: -100M - 20MM + 30MM = 90MM

This calculation is easy enough although I don't think Iimmediately comprehend the adjustments. My questions are:
What exactly does 'unrecognized actuarial gains' mean?
What exactly does 'unrecognized prior service cost' mean?

Clearly the first item deteriorates the funded status so that it becomes a cost, not a credit. In any event, 'unrecognized actuarial gain' seems more like a credit to me.

Likewise with the second item. This item seems to improve the funded status so that it becomes a credit. An 'unrecognized prior service cost' seems to me to be a cost that was not accounted for in the past. I guess you could say it 'sounds' like a cost that, was paid for, but not recognized previously. I guess this is one of those examples where a gain becomes a debit (-) while a cost becomes a credit (+). Still, it would be nice to be able what to tell from the language as opposed to memorizing this. Is this possible?

Anyway, any suggestions are welcome. God I hate these questions. So simple yet, in my opinion, so nuanced/easy to mess up. There is a reason I did not go into the humanities... I tend to overthink the language and after a few minutes it all looks to me like chopped meat...

thanks

Kapie

PBO at B/S date is PV of benefits that is calculated with latest actuarial assumptions that is certified by your actuaries. Fair value of your pension on B/S date is the figure that your pension benefits investment manger gives you.

PBO - Fair value of pension assets = Net funded status. +ve => net liability; -ve => net asset

This is how USGAAP works, plain and simple that makes economic sense.

IFRS gives some more room for smoothing. The PBO at B/S date is net to-date figure; meaning it includes all unrecognized stuff: actuarial gains/losses, past service costs.

Since you did not recognize some stuff, just get them off of PBO to calculate the funded status:

+ PV of the defined benefit obligation at the balance sheet date [~DBO]
– unrecognized actuarial losses [~DBO is inclusive of this unrecognized loss, adjust]
– unrecognized transition liabilities [~DBO is inclusive of unrecognized liability, adjust]
– unrecognized past service costs [~DBO is inclusive of unrecognized service costs, adjust]

– the fair value of plan assets at the balance sheet date

= Net funded status

IFRS says you can recognize the unrecognized stuff (amortize) slowly to bring them into B/S.

SeanWest

Agree with the logic above. However, Example 1 of p. 200 in Volume 2 does not including the transition liability in the adjustment like you have described above. According to your logic they should report a Pension Asset of $492 (inclusive of transition liability) instead of $492.

jacksparrow

Drive this logic in reverse.

Funded status = reality = -100m.

Reported liab = BS illusion = X

Now,

X + unreported gains - unreported costs = reality

Solve for X.

See it?