What is the formula to calculate net periodic pension expense?
The pension expense, also referred to as the “net periodic pension cost” is the annual increase in the projected benefit obligation (PBO) during the given period. You will be required to know the formula to compute net periodic pension costs.
The calculation of net periodic pension cost, which will be reported on the income statement should be computed as follows:
As an example, let’s say that a company had current service period costs of $220,000, interest cost of $90,000, expected return on plan assets of $112,000 and amortized costs expensed in Year 7 of $7,000. For Year 7, the net periodic pension expense recorded in the income statement would be $205,000.
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