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The present benfit obligation (plan liability ) is a estimate provided by acturay of what a company have to pay in future for its employes .
then why we add current Service cost and past service cost in plan liability ? when the libality is actually accounted for all the employe years and cost ? shouldent the service cost decrese the liablity ?
You only adjust the plan liability to the acturaial estimate after adding the service costs and interest and deducting the benefit paid. (e.g. opening balance + interest + service cost +/- gain or loss on any settlement – benefits paid + remeasurement = actuarial estimate).
Both current and past service costs are required to be paid to the employees when the employees retire. They are just the change in a defined benefit obligation for employee service, arising as a result of changes to plan arrangements(for past service cost).
Dr Expense and Cr Pension Liabilities.
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