Journal Entries for Plan Assets Valuation in ASC 965-210

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Accounting Standards Codification (ASC) Topic 965-210, Plan Accounting - Health and Welfare Benefit Plans - Balance Sheet, provides guidance on the valuation of plan assets for health and welfare benefit plans under Generally Accepted Accounting Principles (GAAP). Accurate valuation of plan assets is essential for the proper reporting of a plan's financial position and performance. This article will explore the key aspects of plan assets valuation under ASC 965-210 and provide examples of journal entries to help you better understand the accounting treatment.
 

ASC 965-210 Overview

ASC 965-210 requires health and welfare benefit plans to measure their plan assets at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of fair value should consider the highest and best use of the asset, as well as the principal or most advantageous market for the asset or liability.

Similar to the fair value hierarchy under ASC 960-325, the determination of fair value for health and welfare benefit plans involves the use of various inputs, which are categorized into three levels:
 

• Level 1: Quoted prices in active markets for identical assets or liabilities
   

• Level 2: Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities or market-corroborated inputs
   

• Level 3: Unobservable inputs, such as the plan's own assumptions about market participants
   

Journal Entries for Plan Assets Valuation
 

To illustrate the accounting treatment for plan assets valuation, let's consider an example. A health and welfare benefit plan holds the following investments:
 

• Investment A: 2,000 shares of a publicly traded stock with a quoted market price of $30 per share

• Investment B: $300,000 par value of corporate bonds with observable market prices of similar bonds indicating a fair value of $315,000
   

Here are the journal entries for the plan to record the valuation of its plan assets
 

1. Health and welfare benefit plan records the fair value of Investment A:

Debit: Investment A $60,000
Credit: Unrealized Gains/Losses on Investment A $60,000
Calculation: 2,000 shares * $30 per share = $60,000

In this case, the plan recognizes the fair value of Investment A based on the quoted market price, a Level 1 input.
 

2. Health and welfare benefit plan records the fair value of Investment B:

Debit: Investment B $315,000
Credit: Unrealized Gains/Losses on Investment B $315,000

In this example, the plan recognizes the fair value of Investment B based on observable market prices for similar bonds, a Level 2 input.

 

ASC 965-210 provides guidance on the valuation of plan assets for health and welfare benefit plans, ensuring that financial statements accurately reflect the value of the plan's assets. By understanding the accounting treatment and journal entries associated with plan assets valuation, health and welfare benefit plans can maintain accurate financial records and comply with GAAP. Adherence to the provisions of ASC 965-210 ensures that financial statements accurately reflect the financial position and performance of health and welfare benefit plans, providing transparency and comparability for plan participants, sponsors, and other stakeholders. Proper valuation of plan assets is essential for the management of plan assets and the fulfillment of the plan's obligations to its participants.