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 * <u>210,000 </u> <u> </u>
Assets Fair Value/PV of obligation at the end <u> 975,000 </u> <u> 588,000</u>
<u />
* 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).
