FAR question help!

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  • #189260
    Anonymous
    Inactive

    Have a question regarding pensions-

    As far as I understand, OCI is an equity account, it goes to AOCI on statement of equity. Both of them decrease as you do a debit and increase as you do a credit, right?

    First of all, Do you debit OCI and Credit AOCI to put OCI into AOCI account?

    There is this J/E to record amortization to pension expense—-

    Dr Net periodic pension cost

    Cr OCI

    It says you are crediting OCI to take it out of AOCI. why? Isn’t it increasing OCI by credit? Why is it decreasing AOCI?

    Please help me to understand this. Thanks.

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  • #612538
    Anonymous
    Inactive

    OCI and AOCI are equity accounts. You credit OCI to increase it. At the end of the year, you don't debit OCI and credit AOCI – it's kind of like it's own P&L. Whatever is left in OCI gets rolled into AOCI (like net income – gets rolled into Retained Earnings).

    As for your question – if you could be more specific about which book, etc. it would help. But I'm taking a shot at what I think you're asking, and what it's asking. (F-6 pg 17?)

    Essentially, the pension expense in OCI has a debit balance or a loss, which needs to be amortized to pension costs. Thus – this needs to become a debit on the P&L. So, if you have to debit the P&L account, you have to credit the OCI account.

    However, if you were amortizing a gain, you are correct. You would debit OCI and credit the P&L account.

    Hope this helps

    #612539
    mla1169
    Participant

    Pension cost is an expense. Expenses reduce income. OCI is a below the line account on the income statement and AOCI Is on your balance sheet. When you increase a cost/expense you are reducing income-sometimes it's operating income and other times it's other comprehensive income (in this case). This old post is a fabulous explanation https://www.another71.com/cpa-exam-forum/topic/confusion-on-oci-within-f6-pensions

    Only revenue and gains increase income.

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    #612540
    Anonymous
    Inactive

    Thanks @33andneedacpa! and @ mla1169

    For this J/E

    DR Pension expense

    CR Pension benefit liability

    CR OCI

    Isn't it that by crediting OCI, we are increasing OCI? Why do we need to credit OCI here?

    I do understand that pension adj. is part of OCI.

    #612541
    Anonymous
    Inactive

    ok, I think pension expense includes both pension benefit liability and OCI. PBL is SIR, OCI is the AGE.

    that's why we are crediting OCI. we are increasing OCI there. I just don't get it why the book says that by crediting OCI we are taking it out of AOCI? what??

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