1. Kaylia is a finance major who has only taken one accounting course. She asserts that...

1. Kaylia is a finance major who has only taken one accounting course. She asserts that pension remeasurements, like many other accounting adjustments, are recorded in net income. Is Kaylia correct? Explain.

Expert Solution

IAS 19 deals with this matter and Pension Remeasurements are nothing but Actuarial Gains and Losses and they shall be recognised in "Other Comprehensive Income." They cannot be deferred or recognised in profit and loss account.

This does cause volatility in statement of financial position and other comprehensive income because, these remeasurements are not only caused by change in estimates such as employee turnover, life expectancy etc, but also investment gain or loss and change in discount rate etc.

All such changes are recognised as they occur and cannot be reycled in profit and loss in subsequent periods.

In other words, the revised IAS-19 divides the changes in net defined benefit liability (ASSET) to Service Cost and Finance Cost recognised in Profit and Loss and Remeasurements (Actuarial Gain /Loss) recognised in Other Comprehensive Income.

So, Kaylia is wrong. Remeasurements are recorded in Other Comprehensive Income and not Net Income.

Good Luck

ekkarill92 answered 1 year ago

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