Question

A firm is applying international accounting standards to its defined-benefit pension plan. At the end of the current year, the actuary informs the firm that the plan has experienced an actuarial gain of $2mn. The average remaining service period of plan participants is ten years. Therefore,

A. Defined-benefit obligation does not reflect the decrease of $2mn immediately.
B. Pension expense will be reduced by $200,000 the following year.
C. Other comprehensive income is immediately increased.
D. The unrecognized net gain or loss account is immediately debited.

Answer 1

C) Other comprehensive income is immediately increased.

Step-by-step explanation:

International accounting standards allow firms to recognize pension gains or losses as Other Comprehensive Income (OCI). OCI is not transferred directly to earnings or losses.

The US GAAP records this transactions as increases in pension assets/liabilities.