ASC 960: Actuarial Gain or Loss Journal Entries for Defined Benefit Pension Plans

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Defined benefit pension plans are complex financial arrangements that require accurate accounting to ensure their long-term stability and solvency. The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 960, "Plan Accounting - Defined Benefit Pension Plans," provides guidance on accounting for these plans. One key aspect of ASC 960 is the treatment of actuarial gains and losses. This article will explore the guidelines for recognizing actuarial gains and losses under ASC 960 and provide examples of journal entries to illustrate the accounting process for defined benefit pension plans.

 

ASC 960 Overview

ASC 960 provides guidance on the accounting and reporting requirements for defined benefit pension plans, including the recognition, measurement, and disclosure of the plan's financial position and changes in its financial position. The primary objective of ASC 960 is to ensure consistent and transparent financial reporting for defined benefit pension plans.

 

Key Elements of Actuarial Gains and Losses under ASC 960

 

  1. Actuarial assumptions: Assumptions made by actuaries about various factors affecting the plan, such as future salary increases, employee turnover, and mortality rates.
     

  2. Actuarial gain or loss: The difference between the actual experience of the plan and the expected experience based on actuarial assumptions. Actuarial gains and losses can arise from changes in actuarial assumptions or differences between the assumptions and the actual experience of the plan.

 

Journal Entries for Actuarial Gain or Loss Transactions

To illustrate the accounting process for actuarial gains and losses under ASC 960, let's consider a hypothetical defined benefit pension plan that experiences an actuarial gain of $50,000 and an actuarial loss of $30,000 during the year.

 

Here's how the journal entries for these actuarial gain and loss transactions would look:
 

Record actuarial gain:

Dr. Accumulated Other Comprehensive Income (AOCI) - Actuarial Gain $50,000

Cr. Net Periodic Pension Cost - Actuarial Gain $50,000
 

Record actuarial loss:

Dr. Net Periodic Pension Cost - Actuarial Loss $30,000

Cr. Accumulated Other Comprehensive Income (AOCI) - Actuarial Loss $30,000
 

Note that actuarial gains and losses are recognized as components of other comprehensive income (OCI) and are accumulated in the AOCI account in equity. They are not recognized in the income statement as part of the net periodic pension cost until they are subsequently amortized as a component of the net periodic pension cost over the remaining service period of the affected employees.

 

ASC 960 provides a standardized framework for accounting for actuarial gains and losses in defined benefit pension plans, ensuring consistency and transparency in financial reporting. By recognizing actuarial gains and losses as components of OCI, plan sponsors can accurately reflect the plan's financial position and changes in its financial position on their financial statements. Understanding the journal entries involved in actuarial gain and loss transactions is crucial for defined benefit pension plan sponsors to maintain accurate financial records and comply with accounting standards.