Can anyone tell me how to figure out if it's a defined benefit asset or liability when calculating the accounting treatment for a DBP?
In the accounting treatment for a defined benefit plan, the extract for Profit or Loss is
Current Service cost = 20.0
Past Service Cost = 0.0
Net interest on defined benefit (asset)liability = 0.5
(5% x 200) - (5% x 190)
Net Expense = 20.5
So if it's an asset you subtract and if it's a liability you add.
So how do you figured out if it's an asset of liability?
I have a feeling it's if the difference between Present Value of obligation less Fair Value of plan assets increases (liabilty) or decreases (asset) but I can't find a definitive answer.
So if:
1 Nov x6 PV of Obligation = 200
1 Nov x6 FV of Plan Assest = 190
Difference: 10
31 Oct x7 PV of Obligation = 240
31 Oct x7 FV of Plan Assets = 225
Difference : 15
Increased so a liability?
Is this correct
Or do you add them together
1 Nov x6 PV of Obligation = 200
1 Nov x6 FV of Plan Assest = 190
Totals: 390
31 Oct x7 PV of Obligation = 240
31 Oct x7 FV of Plan Assets = 225
Totals: 465
Increased so a liability.
The question I've pulled these numbers from is a BPP question, number 10 Macaljoy, and the answer states it's a liability but not why. I'd just like to understand the rule as to why.
Does anyone know?
Thanks