On
January 1, 2011, Tuesbury Corporation amended its defined benefit pension plan,
resulting in $1,125,000 in past service costs. Tuesbury Corporation expects to
receive economic benefits, through increased employee productivity and morale,
over the next 15 years, at which point the employees will be eligible for their
full pension benefits. Currently, all employees who are affected by the plan
amendment are already vested.
Calculate
the past service costs included in the pension expense for the December 31,
2011 fiscal year under the deferral and amortization method under both PE GAAP
and IFRS.
Under the PE GAAP deferral and amortization approach, the
$1,125,000 of past service costs is amortized to expense over 15 years, which
is the expected period of benefit from the time of adoption or amendment until
the employees are eligible for the plan’s full benefits. Therefore, the portion of past service costs
included in the 2011 pension expense is $75,000 ($1,125,000 / 15).
Under the IFRS deferral and amortization approach, the
$1,125,000 of past service costs would be amortized to expense on a
straight-line basis over the average benefit period until the benefits become
vested. In this case, all employee benefits
are already vested, therefore, IFRS requires the immediate recognition of the
past service costs into expense.
Therefore, the entire $1,125,000 will be included in pension expense for
2011.
