If a company has multiple pension plans, do you net a plan that has a pension asset with a plan that has a pension liability?
Absolutely not! If a company has two pension plans, and one is a pension asset and one is a pension liability, these have to be shown separately on the balance sheet. A company can only net two pension plans if they are both a pension asset or they are both a pension liability.
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How is the funded status of a pension plan recorded in the financial statements?
Funded status refers to if the pension plan is overfunded or underfunded. If the pension plan is overfunded, then the difference is recorded in the non-current asset section of the balance sheet. If the plan is underfunded, then the difference is recorded in the liability section of the financial statements. Classification between current and non-current […]
How to calculate the fair value of the pension plan asset?
The fair value of plan assets represents the cumulative investments (plan assets) that are being held for retiree’s (employees) and will be paid out once the pension allows for it. The formula below illustrates how to calculate the ending fair value of plan assets, which would be recorded on the asset section of the balance […]
What items increase the pension benefit obligation and what items decrease the pension benefit obligation?
There are five main items that either increase the PBO (increase the liability) or decrease the PBO (decrease the liability. The items that will increase the PBO include interest cost, service cost, and actuarial losses. The items that decrease the PBO (reduce the liability) include actuarial gains and benefits paid to retirees.