FASB Codification Research Project #1
(a) Briefly describe how pension gains and losses are accounted for.
According to FASB ASC 715-30-35:
35-21 Gains and Losses
Gains and losses that are not recognized immediately as a
component of net periodic pension cost shall be recognized as increases or decreases in other comprehensive income as they arise. Accounting for plan terminations and curtailments and other
circumstances in which recognition of gains and losses as a
component of net periodic pension cost might not be delayed is addressed in the Settlements, Curtailments, and Terminations Subsection of this Section.
(b) Explain the rationale behind the accounting method described in part (a).
According to FASB ASC 715-30-35
35-22 Gains and Losses
Asset gains and losses are differences between the actual return on plan assets during a period and the expected return on plan assets for that period. Asset gains and losses include both changes reflected in the market-related value of plan assets and changes not yet reflected in the market-related value (that is, the difference between the fair value of assets and the market-related value). Gains or losses on transferable securities issued by the employer and included in plan assets are also included in asset gains and losses. Asset gains and losses not yet reflected in market-related value are not required to be amortized under paragraphs 715-30-35-24 through 35-25.
35-23 Gains and Losses
In other words, the expected return on plan assets generally will be different from the actual return on plan assets for the year. This Subtopic provides for recognition of that difference (a net gain or loss) in other comprehensive income in the period it arises. The amount recognized in other comprehensive income is also a component of net periodic pension cost for the current period. Thus, the amount recognized in other comprehensive income and the actual return on plan assets, when aggregated,...
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