Triblock Industries has a defined benefit pension plan. Using a discount rate of

Question

Triblock Industries has a defined benefit pension plan. Using a discount rate of 6%, the actuary estimated the company’s projected benefit obligation (PBO) to be $278,343 and $309,796 at the beginning and end of the current year, respectively. The pension plan has not been amended and there were no revisions to the estimates used to derive the PBO. What portion of the current year’s increase in the PBO is attributable to service (that is, the service cost component of pension cost) during the current year?

Explanation / Answer

Service cost = $14752 (Approx.)

Note: There may be difference in answer due to decimal point calculation.

Explanation;

Service cost will be calculated as follow;

PBO balance at the end of year

$309796

Less: PBO balance at the beginning of the year

($278343)

Increase in PBO

$31453

Less: Interest cost ($278343 * 0.06)

($16700.58)

Service cost during the current year

$14752.42 OR $14752 (Approx.)

PBO balance at the end of year

$309796

Less: PBO balance at the beginning of the year

($278343)

Increase in PBO

$31453

Less: Interest cost ($278343 * 0.06)

($16700.58)

Service cost during the current year

$14752.42 OR $14752 (Approx.)

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