[yhe1223]

As of December 31 of the current year, the accumulated postretirement benefit obligation and plan assets of a defined

benefit postretirement plan sponsored by Crouse, Inc., were:

Accumulated postretirement benefit obligation $500,000

Plan assets at fair value 425,000

Transition obligation $ 75,000

Crouse elected to apply GAAP provisions for employers’ accounting for postretirement benefits other than pensions, in

its financial statements for the current year ended December 31 and recognize the transition amount on a delayed basis

as a component of net periodic postretirement benefit cost. The average remaining service period of active plan

participants expected to receive benefits was estimated to be 10 years at the date of transition. Some participants’

estimated service periods are 25 years. To minimize an accrual for postretirement benefit cost, what amount of

transition obligation should Crouse amortize?

$3,000

$3,750

$5,000

$7,500

The answer is as follow:

The $75,000 of transition obligation at the beginning of the current year, the first fiscal year in which Crouse applied

GAAP, is computed as the excess at that date of the accumulated postretirement benefit obligation over the fair value

of plan assets (i.e., $500,000 – $425,000). Typically, if the transition amount is recognized on a delayed basis as a

component of net periodic postretirement benefit cost, it should be amortized on a straight-line basis over the average

remaining service period of employees expected to receive benefits under the plan. However, because the average

remaining service period is less than 20 years (i.e., 10 < 20), Crouse may elect to use a 20-year period. Therefore, the

amount of transition obligation that Crouse should amortize to minimize its accrual for postretirement benefit cost is

$3,750 (i.e., $75,000 / 20).

Just want to know where does the 20 years come from?

Thank you!!!

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[jopa16]

Post benefit retirement transition obligations/benefits are amortized at the greater of service life or 20 years. Remember that normal pension transition obligations/benefits are the greater of service life or 15 years.

REG 2/26/14 - 90
BEC 4/08/14 - 92
FAR 5/31/14 - 90
AUD 7/09/14 -

[yhe1223]

Thank you!

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[cpagal]

Does this still apply? My book says the average remaining service life. It does not mention the 20 year rule. Unless I am not seeing it. I am using Gleim.

FAR - 08/30/15 - 90
AUD - 11/12/15 - 92
REG - 01/19/16 - 82
BEC - 02/29/16 - 83

Passed all on 1st attempt using GLEIM (full program) and NINJA (MCQ only)!!!

Louisiana Licensed CPA

[Author]

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