Question

Unlike pension accounting, the gains and losses from changes in the APBO or the value of plan assets are not subject to amortization using the corridor approach.

A.True
B.False

Answer 1

The gains and losses from changes in the APBO or the value of plan assets are subject to amortization using the corridor approach.

Step-by-step explanation:

The statement is False. Unlike pension accounting, gains and losses from changes in the Accumulated Postretirement Benefit Obligation (APBO) or the value of plan assets are subject to amortization using the corridor approach.

In the corridor approach, a portion of the unrecognized gains and losses is recognized immediately in the income statement, while the remaining gains and losses are amortized and recognized in net pension cost over the expected average service life of employees. This approach helps mitigate volatility in the company's financial statements.

For example, if the changes in the APBO or the plan assets exceed a certain threshold, such as 10% of the greater of the beginning APBO or the plan assets, then the excess is amortized over future periods.