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HI,
I am some what confused as to when should past service cost be included in calculation of interest.
I refer to Bpp’s Revision kit Question 11 and 12.
In question 11 savage the past service cost was included in calculation of interest but was then excluded in question 12 Smith.
I get that if a review of current benefits results in additional cost to the employer for which there is NO condition that the employee must fulfill then the additional cost is past service cost. this cost is recognised through P& L immediately.
but i need to know why it is included in interest for one question and not the other.
It’s probably a matter of what date the past service costs were added to the obligation.
If the change in the plan that now resulted in past service costs being an additional obligation happened at the start of the year, then we would need to include it in the interest calculation.
If it happened at the end of the year, we wouldn’t
Does that sort it out?
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