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
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作者: wxs1986 时间: 2011-7-13 13:19
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作者: tarunajwani 时间: 2011-7-13 13:19
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.
