The following information pertains to Fox Co.'s defined benefit pension plan for 20x4:

Projected benefit obligation, beginning of year $ 800,000

Fair value of plan assets, beginning of year 750,000

Fair value of plan assets, end of year 975,000

Benefits paid 215,000

Employer contributions 230,000

What is the effect to the 20x4 pension expense of the actual return on plan assets?

The effect will be the balancing figure of $210,000 (Return on plan assets)

Explanation:

Workings:

Assets Obligations

$ $

Asset Fair value/PV of obligatio at the beginning 750,000 800,000

Interest nil nil

Benefits paid (215,000) (215,000)

Employer Contribution 230,000

Return on Plan Assets exluding amounts in net

Interest (balancing figure) OCI * 210,000

Assets Fair Value/PV of obligation at the end 975,000 588,000

* OCI means Other Comprehenssive Income

The actual return which is $210,000 would increase the fair value of the asset at the end of the year. However, this will not be recognised in the income statement

This type of return on Plan Assets after a new valuation has been carried out at the end of the year will be treated as as a 're-measurement' and recognised in other comprehensive income.

This is usually the difference between the new value (end of the year fair value), and what has been recognized up to date (i. e the opening fair value balance, interest and any cash payments into or out of the plan).