Question

I. (4 Points) Briefly explain the following terms: e) Market-related asset value. (f) Actual return on plan assets. (g) Expected return on plan assets. (h) Unexpected gains and losses on plan assets.

Answer 1

1. Market – related asset value: It is the price an asset would fetch in the marketplace.

2. Actual return on plan assets: It refers to the profit or loss an investor receives on the assets/ investment he/she has made.

3. Expected return on plan assets: The term return on plan assets refers to the dividends, interest, and capital gains generated by assets held in a company’s pension fund. Accounting rules require companies to differentiate between the expected and actual return on their plan’s assets.

4. Unexpected gains and losses on plan assets: This can either result from change in market value of asset plan. It may be the change that takes place in actuarial assumptions that effects amount of projected obligation benefits. An actuarial assumption is an estimate of an uncertain variable input into a financial model, normally for the purposes of calculating premiums or other benefits. For example: predicting a person’s lifespan, given their age, gender, health conditions and other factors.

Projected obligation benefit is the estimate present value of an employee’s pension, under the assumption that the employee continues to work for the employer. This information is needed by the employer to account for a pension liability.