giants2010

Dreary Wrote:
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> DBO is a liability. If there is a gain, that
> reduces the liability.


Exactly. So why are actuarial gains added to the DBO? Shouldnt it be subtracted?

firat

DBO is a liability. If there is a gain, that reduces the liability.

ayaz_mahmud369

Question:

I still cannot understand whether actuarial gains / losses increase or decrease the DBO.

Actuarial gains ---> increase DBO?

Actuarial losses ---> decrease DBO?

This seems counterintuitive.

Can someone elaborate on this?

sameeragarwal

Here is my take on this. Unrecognized actuarial gains/losses as well as unrecognized prior service costs/benefits are adjustments to the DBO due to various reasons, e.g., changing average emploee life, loss/gain on actual assets, salary increase rate, you name it. However, when these numbers are assessed they are not expnsed immediately as that would make the DBO volatile, same reason why we capitalize costs instead of expensing them.

So, you take these losses/gains and book them in a small account under equity, and just leave them there. Don't amortize them yet. Just pile them up there. When they exceed 10% of your beginning DBO or your beginning plan assets value, then any excess above 10% gets amortized and that that's what goes on your pension expense.

IFRS says if you really want to show the status of your pension plan, don't hide those gains/losses in equity, get them out of there. You then add/subtract them to/from funded status.