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I really don’t understand the calculation of expected and actual return on plan assets and the effect of contributions received from the employer and benefits paid out, on this calculation.
Expected return is what it says – it’s the return which could be expected from the investment of the pension fund assets at a reasonable rate ( given in an exam question )
Actual return is not needed in the solution of any exam question in this area of the syllabus. If actual return is less than that expected, this could ( not necessarily will ) lead to a deficit ( unrecognized loss )
Contributions paid by the employer simply increase the pension fund assets and are intended to keep the fair value of the plan assets somewhere similar to the present value of the future obligation.
When the fund has to pay out the pension fund pensioners, that payment will reduce the fund’s future obligations. But at the same time, the payment will be made out of the pension fund assets. Double entry would be Dr future obligation, Cr plan assets
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