FRA Employee Compensation

[archived_user]

Hi,
1. How is the net interest expense calculated using GAAP?
2. In Example 2 in the book, to calculate net interest expense, we are multiplying the discount rate with the beginning PVDBO but in other questions we are multiplying the discount rate with NPL. How do we know when to use which method?

 

[archived_user]

USGAAP- beginning pension obligation
IFRS- net pension liability.
So pay attention to accounting standard being followed by the company.

 

[archived_user]

Thanks!

 

[archived_user]

In example 2, I don’t see GAAP written anywhere unless I have missed it

 

[archived_user]

When calculating pbo using unit credit method ( example-2), int exp will be same. Because return on assets does not come into play.

 

[archived_user]

Oh ok. So for GAAP the formula to calculate net interest exp is Bg. PVDBO x Discount rate - Bg. FVPA x Expected return?

 

[archived_user]

Yes.

 

[archived_user]

Great. Thanks so much!

 

[archived_user]

Net interest expense = opening funded status x discount rate
please see the below link
https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91354666

 

[archived_user]

Thanks!