Question

A government offering a defined benefit pension plan changes the plan terms with the result that pension benefit are increased. How would the resulting increase in the net pension liability be recognized in the financial statements in the year the plan is changed?

A) The increase in net pension liability would be expensed in the period the plan is changed.
B) The increase in net pension liability would be deferred and amortized over the remaining service life of the employees.
C) The increase in net pension liability would be deferred and amortized over five years.
D) The increase in net pension liability would be deferred and amortized over ten years.

Answer 1

A)

Step-by-step explanation:

Based on the scenario being described within the question it can be said that the increase in net pension liability would be expensed in the period the plan is changed. This is done for the sole purpose of keeping things organized, quick and simple, therefore since during the period that the plan is changed these increases are put into effect.