Accounting for Post-Employment Benefits in Defined Benefit Plans

Hard Employee Compensation Post-employment Benefits

ABC Corporation operates a defined benefit pension plan for its employees. As of the most recent reporting date, the company has estimated that it has a projected benefit obligation (PBO) of $10 million and plan assets of $7 million. In addition, the company incurs $300,000 in service costs during the year. ABC Corporation also expects to make a contribution of $500,000 to the plan in the upcoming year. Given these figures, indicate the correct accounting treatment for the post-employment benefit in the financial statements for the year.

The net pension liability recognized on the balance sheet should be $3 million.

The pension expense recognized in the income statement should include $300,000 in service costs, $500,000 in contributions, and interest on the net liability.

The total pension expense will equal the $300,000 service cost, excluding any contributions made during the year.

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