Question

Ellen Industries has a defined benefit pension plan. At December 31, 2017, Ellen received the following information:

($ in 000s)	2017	2018
	Beginning Balance	Beginning Balance
PBO	(360)	(429)
Plan Assets	240	300
Prior Service Cost - AOCI or OCI	200	165
Accum. Benefit Oblig.(ABO)	(300)	(360)
Net Loss-AOCI	100.6	100

At the end of 2017, Ellen contributed $60 thousand to the pension fund and benefit payments of $27 thousand were made to retirees. The expected rate of return on plan assets was 11%, and the actuary's discount rate is 10%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is Havana's 2017 actuarial gain or loss on plan assets?

a. $0.

b. $26.4 thousand gain.

c. $27 thousand loss.

d. $0.6 thousand gain.

Answer 1

Solution:
	Answer is d. $0.6 thousand gain.
Working Notes:
	Havana's 2017 actuarial gain or loss on plan assets = Actual return on plan assets - Expected return on plan assets
		=$27- $26.40
		=$0.60
	Expected return on plan assets = Plan assets in 2017 x expected rate of return on plan assets
		=240 x 11%
		=$26.4
	Actual return on plan assets
	let Actual return on plan assets = A
		Plan assets
	Beginning balance 2017	240	[plan assets in 2017]
	Add: Actual return	A
	Add: Cash contribution	60
	Less: Retire benefits	($27)
	Ending balance 2017	300	[plan assets in 2018]
	Now from above calculation we get
	Beginning balance 2017 + Actual return + Cash contribution - Retire benefits = Ending balance 2017
	240+A+60-27=300
	Actual return (A) = 300+27-60-240
	Actual return (A)=27
Please feel free to ask if anything about above solution in comment section of the question.