Module 1 - Financial Accounting - Powerpoint Slides
Defer and Amortize Approach (ASPE)
§  actuarial revaluations and plan amendments on the
accrued benefit obligations and experience gains and
losses on plan assets are deferred and amortized
-  experience gains and losses on plan assets =
difference between expected return on plan assets
and the actual return
§  plan amendments are amortized straight-line over the
period to full vesting of benefits
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Defer and Amortize Approach (ASPE)
cont’d
§  actuarial revaluations and experience gains & losses
are combined into ‘actuarial gains and losses and kept
off balance sheet
§  if they grow too large, they are amortized based on
the corridor test
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Module 1 - Financial Accounting - Powerpoint Slides
Corridor Test (ASPE)
§  corridor = the greater of 10% of the beginning ABO
or the plan assets
§  the sum total of the accumulated actuarial &
experience gains/losses at the beginning of the year is
compared to the corridor
-  if the corridor is exceeded, amortize the excess
over the average remaining service life of the
employees
-  if not, do nothing
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Accrued Benefit Obligation
Defer & Amortize Approach (ASPE)
Balance at the beginning of year
+
Accrued Interest
+
Current Service Cost
Benefit Payments to retirees
±
Actuarial revaluations
±
Plan amendments (Past Service Cost)
=
Balance at the end of the year
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Module 1 - Financial Accounting - Powerpoint Slides
Pension Plan Assets
Defer & Amortize Approach (ASPE)
Balance at the beginning of year
+
Expected return on plan assets
+
Funding payments
Benefit payments
±
Experience gain or loss (difference between
the actual and expected return)
=
Balance at the end of the year
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Pension Expense
Defer & Amortize Approach (ASPE)
Current Service Cost
+
Interest on the ABO
Expected return on plan assets
±
Amortization of past service costs (amortized
over the expected period to full vesting)
±
Amortization of actuarial gains/losses
(experience gains or losses and actuarial
revaluations), if warranted by the corridor
test
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Module 1 - Financial Accounting - Powerpoint Slides
Reconciliation of Funded Status
Defer & Amortize Approach (ASPE)
§  the funded status is the true economic liability to the
firm and is equal to the difference between the
defined benefit obligation and the fair value of the
plan assets
§  deduct the accrued pension liability (or add the
pension asset) from the funded status to determine
the unrecorded liability/asset
§  the unrecorded liability/asset is equal to the sum of:
-  the unamortized past service costs, and
-  the accumulated actuarial gains and losses
(actuarial revaluations and experience gains/losses)
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