Rachel Avery, accounting clerk in the personnel office of Clarence G. Avery Corp., has begun to compute
Question:
The average remaining service life per employee in 2008 and 2009 is 10 years and in 2010 and 2011 is 12 years. The unrecognized net gain or loss that occurred during each year is as follows.
2008 ................$280,000 loss
2009....................90,000 loss
2010....................12,000 loss
2011....................25,000 gain
(In working the solution, you must aggregate the unrecognized gains and losses to arrive at year-end balances.)
Instructions
You are the manager in charge of accounting. Write a memo to Rachel Avery, explaining:
(a) Why in some years she must amortize some of the unrecognized net gains and losses and in other years she does not need to. In order to explain this situation fully, you must compute the amount of unrecognized net gain or loss that is amortized and charged to pension expense in each of the 4 years listed above. Include an appropriate amortization schedule, referring to it whenever necessary.
(b) IFRS offers an alternative approach to corridor amortization for actuarial gains and losses. Describe this method and explain how its use affects pension expense and the pension asset/liability in the period an actuarial gain or lossarises.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0470616314
IFRS edition volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield