Pension Fund Accounting – Basic Example

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

We must record the benefit expense in the company’s books, debiting the expenses:

  • DR Benefit Expense 10,000,000
  • CR Defined Benefit Liability 10,000,000

To record company contribution to Benefit Liability:

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

To adjust Benefit 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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