I am not able to understand the following journal entries-

1.) Amortization of prior service cost dr.

              Other comprehensive income

I am able to understand expensing of SIR. But why is OCI credited instead of liability a/c when AGE is expensed.

Becker had a very tiny explanation for this and that too got skipped in my CD.

2.) Recording current year Net Loss

Other comprehensive income

               Pension benefit liability-non current

Need some help with the above entries. Please share your comments

i also have a sam equsetion abt the treatment of pension on OCI

The prior service cost (in full amount) and all other losses (in full amount as well) is recorded as part of OCI.

The J/E for the initial recording is:

Dr OCI

           Cr Pension benefit Liability

Once you amortize the prior service cost, you take out a part of it from OCI. You do NOT credit Pension Benefit Liabilty since the full amount has already been included in the prior entry. The J/E for amortization:

Dr: Net Periodic Pension Cost

      Cr: OCI

Thanks xavier16. Why do we debit OCI in the first place? and if we are reversing it fully, it does not get expensed, right?

I think I need to understand the concepts behind these entries. I have not had Pensions in my courses earlier, its really new for me.

Badly need some more explanation!

Sanjana, not sure how to explain effectively, but this is my understanding :-

According to old pension rules (SFAS 87 and SFAS 106), delayed recognition was permitted for the changes in the funded status of a pension plan due to gains or losses, prior service costs and net transition assets or obligations.

New pension rules, i.e., SFAS 158 eliminated this delayed recognition. And, provided to recognize the above three items in other comprehensive income (which were not recognized/expensed as components of net periodic benefit cost earlier)

Remember, these costs affect the pension benefit liability/asset (amount to be contributed/funded/adjusted to the pension plan)

Thus, the JE:-

Dr OCI

           Cr Pension benefit Liability

Now, the subsequent JE(s) which recognizes/expenses a part of these costs for the current period and period going forward.

Dr: Net Periodic Pension Cost

      Cr: OCI

The above JE recognizes a part of the unrecognized costs per period as expense as per the SIR-AGE rules. Thus, we take out the current period's portion out of OCI and take it to income statement for the current period as NPPC. Full amount is not taken out in one year !

Now, the above JE would be consistent for "AGE" (all prior period items now expensed annually)

If we have to recognize "SIR" (Service cost, Interest expense and Expected Return) for the current period :-

DR NPPC

CR Pension Benefit Liability

Becker has an excellent example - pages F6-14 to F6-17. It covers all the JEs !

Hope it helped !