Question

Calculate amortization of existing net obligations/net assets at implementation - pensions - E

a) Straight-line method
b) Declining balance method
c) Units of production method
d) Sum-of-the-years-digits method

Answer 1

Amortization of net obligations/net assets can be calculated using different methods, including straight-line, declining balance, units of production, and sum-of-the-years-digits methods.

Step-by-step explanation:

In the context of implementing pensions, amortization refers to the gradual reduction of existing net obligations or net assets over time. There are several methods that can be used to calculate amortization, including:

1. Straight-line method: This method evenly allocates the amortization amount over the useful life of the asset. For example, if the net obligation is $10,000 and the useful life is 5 years, the annual amortization expense would be $2,000.
2. Declining balance method: This method allocates a higher amount of amortization in the earlier years and decreases it over time. It is commonly used for assets that have higher value in the early stages of their useful life.
3. Units of production method: This method allocates the amortization amount based on the actual production or usage of the asset. It is suitable for assets that are directly linked to production or usage levels.
4. Sum-of-the-years-digits method: This method allocates a higher amount of amortization in the earlier years and decreases it over time, similar to the declining balance method. However, the allocation is based on a specific formula that considers the useful life of the asset.