Pension interest cost has one role in the employer's benefit accounting. Interest cost reflects passage of time on the discounted PBO under the supported rate and timing convention. It increases the obligation and enters periodic pension cost.
Apply it
With an $18 million opening PBO and a supported five-percent opening-balance convention, interest cost is $900,000. The multiplication checks the report without proving the selected rate.
Common mistake
Do not assume that interest cost is interest paid to retirees or lenders. Interest cost is the period increase in the measured obligation caused by the passage of time. That error would misclassify the unwinding of a discounted obligation as an external financing payment.
Keep the boundary clear
An interim remeasurement or weighted cash-flow convention may change the base. Accounting must not default to opening PBO when the actuarial schedule uses another supported method.
Authority
Read ASC 715-30-35-8 for interest on the projected benefit obligation.
Put the concept to work
Apply this concept
- Explain and apply pension interest cost within a reconciled employer benefit-plan workpaper using supplied authoritative and actuarial facts.
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Build on these ideas
- Projected benefit obligation — Apply
To apply this concept: Required. This prior schedule supplies a required amount or classification.
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- Net periodic pension cost — Apply
Required level here: apply. Required. This prior schedule supplies a required amount or classification.