Question

On July 31, year 2, Tern Co. amended its single employee defined benefit pension plan by granting increased benefits for services provided prior to year 2. This prior service cost will be reflected in the financial statement(s) for?

Answer 1

Answer:

Options Include:

1. Years before Year 1 only.

2. Year 1 only.

3. Year 1 and years before and following Year 1.

4. Year 1 and following years only. is Correct

Explanation:

Prior cost of service is acknowledged whenever a contract is changed to provide added benefits for services previously received by workers.

The amortization of the prior service expense must be acknowledged as an element of the retirement cost during the future service periods of all those workers whom are active on the date of the plan modification and are entitled to receive rewards under the Scheme.

Therefore, prior service costs are expressed throughout the financial statements for Year 1 once the plan was modified and even in the years that follow when it is amortized.