Pensions – OCI – PBO – huh?

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  • #193886
    Anonymous
    Inactive

    OK, I’ve been tearing my hair out over this for two weeks. I can calculate everything, but I just don’t get how the entries work.

    First off – is OCI a nominal or a real account? My thought was it was a nominal account that collected the transactions applicable to the current period (pensions being one of them) and then this was closed to ACOI.

    So say you have a prior service costs for the period. You can’t debit the whole thing to OCI or do you? It would seem like that would be a disaster for Comprehensive Income.

    Or is it like this:

    Year 1: Prior Service Cost $100,000

    Dr. ACOI $100,000

    Cr. What – Pension Liability, but we don’t recognize the entire thing? Or is this some off -balance sheet account?

    In other words, if the entire $100,000 is added to the PBO, but you haven’t funded it, why doesn’t it show up as a huge pension liability on the balance sheet. In other words when you do the year end calculation (PBO – Plan Assets) why doesn’t that result in a huge pension liability for anything that’s being amoritized. Or by the same token, whey aren’t company’s why aren’t these costs showing up as huge offsets to retained earnings in the SHE equity section of the balance sheet. Is a debit in ACOI really like a liability?

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  • #665411
    jaxon1024
    Member

    In the year the prior service cost is recognized the entire amount is debited to OCI and either increases the pension liability or decreases the pension asset, thus affecting the funded status. Then over time it is amortized out of OCI and into pension expense. So it does affect the balance sheet presentation in the first year and not the following years, whereas interest, current service costs, and return on assets does affect the funded status every year (SIR if you're using becker). And a debit balance in AOCI is basically negative stockholders' equity, but there are other items that go into OCI that could offset this negative balance. So in your example, after the entry you listed the 100,000 would be amortized over the average service life of the employees.

    Dr Pension Expense

    Cr OCI

    You would also have deferred taxes with the pension transactions.

    Hope this helps!

    Reg 85 (11-21-14)
    Aud 93 (1-17-15)
    Bec 89 (2-27-15)
    Far 92 (5-7-15)

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    #665412
    Anonymous
    Inactive
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