Question

JDS Foods' projected benefit obligation, accumulated benefit obligation, and plan assets were $50 million, $40 million, and $29 million, respectively, at the end of the year. a. What, if any, pension liability or pension asset must be reported in the balance sheet? b. What, if any, pension liability or pension asset must be reported in the balance sheet if the plan assets were $67 million instead? million million b.

Answer 1

Answer: The difference between an employers obligation and the resources available to satisfy that obligation is the funded status (PBO) of the pension plan. The employer must report the net difference between the two amounts refered to as the funded dtatus of the plan in the balance sheet. It is reported as a net pension liability if PBO excees the plan assets and net pension asset if plan assets exceeds PBO.

So in the first case,

PBO is $50

Plan assets is $29

So as explained above as the PBO is more there will be net pension liability of $ 21.( $50 - $29 )

So in the second case,

PBO is $50

Plan assets is $67

So as the Plan assets is more than PBO there will ne net pension asset of $17 ($ 67 - $ 50 ).