[accountabergs]

I am trying to compare journal entries with the example on page F6-17 and the simulation #3 for F6. What I am trying to make sense of is the difference between debiting(crediting) the the Pension Benefit Liability account rather than the Pension Benefit Asset account.

In the book, to record contributions, Pension Benefit Liability is debited, but in the SIM, Pension Benefit Asset is debited. Also, for SI(R), in the book, Pension Benefit Liability is credited, but in the SIM, Pension Benefit Asset is credited. Is there a reason for this?

Passed in 2014

FAR- (5/27) 88
REG- (2/20) 70, Rematch: (7/2)83
BEC- (4/2) 85
AUD- (4/24) 87

Using Becker live classes and online materials

"if you get confused, listen to the music play"

[Anonymous]

I am also curious about this as well, does anyone have an explanation? why do they use pension asset or pension liability when they do?

[Anonymous]

I am also curious about this as well, does anyone have an explanation? why do they use pension asset or pension liability when they do?

[Anonymous]

Does it have something to do with the funded status of the plan?

[Anonymous]

Does it have something to do with the funded status of the plan?

[Anonymous]

I can't speak to your specific problem as I don't have becker and am by no means an expert on pensions (I just finished them up a few days ago, actually) but I'll give it a shot.

It depends on the funded status of the plan.

A pension liability occurs when your PBO is greater than your plan assets. This means your plan is underfunded. There isn't enough in there to cover what needs to be covered.

A pension asset occurs when your plan assets are greater than the PBO. Your plan is overfunded. You've put enough in, and then some.

If you have a pension liability, a fund contribution brings you closer to “funded” status, thereby reducing your pension liability, i.e. a debit to pension liability to reduce it.

If you have a pension asset, a fund contribution increases the amount you are overfunded by, thereby increasing your pension asset, i.e. a debit to pension asset to increase it.

Debiting the asset and debiting the liability effectively achieve the same thing. You just need to know what the funding status of the plan is to figure out which one to do. Is the PBO > plan assets, or PBO < plan assets? And to determine that, well, you need to know the rest of pension accounting, or read the problem for additional information.

Service and interest costs, same logic applies, just in reverse, right? More service/interest cost means more to pay, means more liability if you have a liability (credit) or less asset if you have an asset (credit). And a greater return means less to pay, means less liability (debit) or more asset (debit).

In the end, it all comes down to funding status here.

Someone correct me if I'm wrong?

[Anonymous]

I can't speak to your specific problem as I don't have becker and am by no means an expert on pensions (I just finished them up a few days ago, actually) but I'll give it a shot.

It depends on the funded status of the plan.

A pension liability occurs when your PBO is greater than your plan assets. This means your plan is underfunded. There isn't enough in there to cover what needs to be covered.

A pension asset occurs when your plan assets are greater than the PBO. Your plan is overfunded. You've put enough in, and then some.

If you have a pension liability, a fund contribution brings you closer to “funded” status, thereby reducing your pension liability, i.e. a debit to pension liability to reduce it.

If you have a pension asset, a fund contribution increases the amount you are overfunded by, thereby increasing your pension asset, i.e. a debit to pension asset to increase it.

Debiting the asset and debiting the liability effectively achieve the same thing. You just need to know what the funding status of the plan is to figure out which one to do. Is the PBO > plan assets, or PBO < plan assets? And to determine that, well, you need to know the rest of pension accounting, or read the problem for additional information.

Service and interest costs, same logic applies, just in reverse, right? More service/interest cost means more to pay, means more liability if you have a liability (credit) or less asset if you have an asset (credit). And a greater return means less to pay, means less liability (debit) or more asset (debit).

In the end, it all comes down to funding status here.

Someone correct me if I'm wrong?

[accountabergs]

That is definitely correct and makes perfect sense. I emailed one of my Becker instructors and he said it depends on whether you have an existing liability or asset in the fund. Glad we got this covered, thanks for the help.

Passed in 2014

FAR- (5/27) 88
REG- (2/20) 70, Rematch: (7/2)83
BEC- (4/2) 85
AUD- (4/24) 87

Using Becker live classes and online materials

"if you get confused, listen to the music play"

[accountabergs]

That is definitely correct and makes perfect sense. I emailed one of my Becker instructors and he said it depends on whether you have an existing liability or asset in the fund. Glad we got this covered, thanks for the help.

Passed in 2014

FAR- (5/27) 88
REG- (2/20) 70, Rematch: (7/2)83
BEC- (4/2) 85
AUD- (4/24) 87

Using Becker live classes and online materials

"if you get confused, listen to the music play"

[Anonymous]

ha i had the same problem with this. and i believe there is a mc in the hw that emphasizes this point. if u contribute cash and u have an OVERFUNDED plan, then that increased ur plan assets since u already have an asset greater than ur liability.

if u have an UNDERFUNDED plan, ur liability is greater than ur asset so by contributing to the asset, ur decreasing the underfunded status – – thereby decreasing your liabilitiy – – hope that makes sense!

[Anonymous]

ha i had the same problem with this. and i believe there is a mc in the hw that emphasizes this point. if u contribute cash and u have an OVERFUNDED plan, then that increased ur plan assets since u already have an asset greater than ur liability.

if u have an UNDERFUNDED plan, ur liability is greater than ur asset so by contributing to the asset, ur decreasing the underfunded status – – thereby decreasing your liabilitiy – – hope that makes sense!

[Author]

Replies