Question

The following information pertains to Fox Co.'s defined benefit pension plan for 20x4:

Answer 1

Answer:

The effect will be the balancing figure of $210,000 (Return on plan assets)

Explanation:

Workings :

                                                                                        Assets      Obligations

                                                                                             $                 $          

Asset Fair value/PV of obligatio at the beginning     750,000      800,000

Interest                                                                                 nil                  nil

Benefits paid                                                                 (215,000)       (215,000)

Employer Contribution                                                   230,000      

Return on Plan Assets  exluding amounts in net

Interest (balancing figure) OCI *                                   210,000                        

Assets Fair Value/PV of obligation at the end           975,000          588,000

* OCI means Other Comprehenssive Income

The actual return which is $210,000 would increase the fair value of the asset at the end of the year. However, this will not be recognised in the income statement

This type of  return on Plan Assets after a new valuation has been carried out at the end of the year will be treated as as a 're-measurement' and recognised in other comprehensive income.

This is usually the difference between the new value (end of the year fair value ) , and what has been recognized up to date (i.e the opening fair value balance,interest and any cash payments into or out of the plan).