Pension Fund Accounting – Basic Example

A company has a defined benefit pension plan. At the end of 2016, the fair value of the assets and liabilities in the pension amounted to $8 million. In 2017, the pension expense was $10 million, and the company contributed $6 million to the pension plan. At the end of 2017, the fair value of the pension assets and liabilities was at $13 million. Here are the basics:

We must record the Pension expense in our books debiting the expenses:

  • DR pension expense 10,000,000
  • CR Defined Benefit Pension Liability 10,000,000

To record company contribution to pension liability fund

  • DR Defined Benefit Pension Liability 6,000,000
  • CR Cash 6,000,000

To adjust pension liability to fair value as at the end of the FY or valuation period.

  • DR Other comprehensive income (OCI) 1,000,000
  • CR Net defined benefit liability 1,000,000

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