[tgrimaldi]

Hello.

I am a little confused on a concept relating to Pensions in FAR:

Why when I am amortizing my prior year service costs and pulling them from OCI why do I make these entries ( I understand entry #1)

1.

Debit – Pension Cost Expense

Credit – Other Comprehensive Income

2.

The one I don’t get:

Debit – Deferred Tax Benefit – OCI

Credit – Deferred Tax Benefit – Income Statement

Thanks!

[M.O.D.]

Regarding 1, you are increasing your expense not your PBO liability.

Regarding 2, the tax benefit was already recognized when the prior service costs were first put in OCI and are now in AOCI. Since the tax benefit was already recognized, you move it from AOCI to net income via OCI.

You need to make a distinction between OCI and AOCI to understand this better.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Author]

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