Just wanted to know why does “actuarial gains” add to the “contribution plan” liability in S.O.F.P.
Because, in my opinion they should be deducted as they are reducing the liability.
Hope you got my question.
yes, I understand your confusion too!
If you go back to basic double entry principles, a credit balance can only be one of two things – a liability or an income. An actuarial gain results from the double entry Dr Fair Value of Plan Assets ( FVofPA ) and Cr Unrecognised Gains and Losses ( UGLY ).
So we have a credit balance in the UGLY account. It’s a gain which is being deferred – we are not going to recognise this as a gain except in so far as it lies outside the 10% corridor. But it’s still a credit balance! So add it to the other credit balances related to the Pension Fund. Therefore, add it to the Present Value of the Future Obligation.
It does seem strange – I admit, but where else could you include it? As a deduction from Plan Assets? Remember, there should be a minimum of netting off – so that wouldn’t be acceptable on even the most basic principles. In addition, if it’s such good news, would you accept that it should be used to REDUCE the value of the Plan Assets? I don’t think so!
Essentially, it comes down to F3 level ( I don’t mean to insult you! ) and an understanding of debits and credits!
Hope that helps
Yeah, i got you and that ugly account.
Thanks for your help,i guess i underestimated the double entry system.
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