Question: Patel Industries has a noncontributory defined benefit pension

Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary's discount rate has been 7%. During 2011, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 6% is the appropriate rate.

1. Does the change in discount rate create a gain or does it create a loss for Patel? Why?
2. Assume the magnitude of the change is $13 million. Prepare the appropriate journal entry to record any 2011 gain or loss. If Patel prepares its financial statements according to U.S. GAAP, how will the company report the gain or loss?
3. Would your response to requirement 2 differ if Patel prepares its financial statements according to International Financial Reporting Standards?

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  • CreatedJuly 05, 2013
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