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I do not understand the concept of gains and loss on settlement which forms the part of service cost.
It is the difference between the fair value of assets paid out and the reduction in present obligation. But we say that the benefits paid out doesnt have any effect since the amount of reduction in assets and liability is same.
So where are we getting this difference of gains and losses from?
Like if a company is paying its employee 2000 every month as pension, then it will reduce both assets and obligation with the same amount (2000) where is gain/loss ?
When the payment on settlement is made it is not necessarily the amount that is shown in the financial statements. The difference between what is settled and what is recognised gives rise to the gain/loss.