Question

Brief Exercise 20-07

Indigo Corporation had a projected benefit obligation of $2,992,000 and plan assets of $3,156,000 at January 1, 2020. Indigo also had a net actuarial loss of $457,720 in accumulated OCI at January 1, 2020. The average remaining service period of Indigo’s employees is 7.60 years.

Compute Indigo’s minimum amortization of the actuarial loss.

Minimum amortization of the actuarial loss

Answer 1

As per corridor rule, the actuarial gain or loss in excess of 10% of the higher of the projected benefit obligation or fair value of the plan assets should be amortized equally over the average remaining service period.

Calculation of Minimum Amortization of the actuarial loss (Amounts in $)

a) Projected benefit obligation	2,992,000
b) The fair value of Plan Assets	3,156,000
c) Higher of a or b	3,156,000
d) Corridor amount (c*10%)	315,600
e) Net Actuarial loss	457,720
f) Excess loss to be amortized (e-d)	142,120
g) Average remaining service	7.60 yrs
h) Minimum amortization of actuarial loss (f/g)	18,700

Therefore Indigo’s minimum amortization of the actuarial loss is $18,700.