Question

In a defined benefit plan, which item would NOT be included in the computation of Pension Expense?

Select one:

a. Prior Service Cost amortization

b. Amortization of gain above the corridor

c. Interest on the MRAV

d. Service Cost

Answer 1

Solution ;

In a defined benefit plan , Interest on MRAV not be included in the computation of pension expense.

1. Prior sevice cost amortization

                      It represents the cost of providing retroactive benefits over the remaining service years of

covered employees .

2.Amortization of gain above the corridor is the component of net periodic pension cost

3.Service cost is the primary component of pension expenses . It refers to the required amount the employer

   must set aside each year to cover employees' pension benefits upon retirement . It depends on factors such as

   job promotion , salary increases and early retirement as these affect the final benefit amount .