Question

Blossom Corporation ended its previous fiscal year with a defined benefit obligation of $132,372 and plan assets of $134,400. On January 1, 2020, the company amended its one-person defined benefit pension plan, resulting in a revised defined benefit obligation at that date of $149,989. As a result of this past service award, Blossom’s required contributions into the plan assets increase by $1,248 each year.

Determine the effect that the plan amendment has on Blossom’s 2020 pension expense reported in net income, assuming the company follows ASPE.

Pension expense will ( increase or decrese) and net income will (increasedecrease ) by $enter a dollar amount  in 2020 under ASPE.

  

  

What if Blossom applies IFRS?

Pension expense will (decreaseincrease ) and net income will (decreaseincrease) by $enter a dollar amount  in 2020 under IFRS.

  

  

Answer 1

a. Determine the effect that the plan amendment has on Blossom’s 2020 pension expense reported in net income, assuming the company follows ASPE.

Effect on 2020 net income of plan amendment for past service cost under ASPE:

Post-plan amendment benefit obligation $149,989

Pre-plan amendment benefit obligation   132,372

Past service cost to recognize in expense in 2020 $ 17,617

Pension expense will increase and net income will decrease by $17,617 in 2020 under ASPE. (The net interest/finance cost also increases as the weighted average balance of the DBO during the year increases by $17,617 for the whole year.)

b. What if Blossom applies IFRS?

If Blossom applies IFRS instead of ASPE, the effect would be identical. Past service cost is one of the components of pension expense that is included in net income.