Zephyr plc amends its defined pension plan on January 1, 2012, resulting in £420,000 of past service cost.The company has 400 active employees, of which 100 vest immediately (25%) and the other 300 (75%) vest in four years.The unrecognized past service cost applicable to the vested employees is £105,000 and vests immediately.The unrecognized past service cost related to the unvested employees is £315,000 and is amortized over five years.How much would Dawson report as amortization of past service costs in 2012?

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Quizplus · Accepted Answer

The total past service cost of £420,000 is divided between immediately vested employees (£105,000) and unvested employees (£315,000). The £105,000 is recognized immediately as a one-time expense. The remaining £315,000 is amortized over the remaining five years until all of the unvested employees have vested. Therefore, the annual amortization expense for 2012 would be £63,000 (1/5 of £315,000). In total, the past service cost expense recognized in 2012 would be £168,000 (£105,000 + £63,000).

Zephyr Plc Amends Its Defined Pension Plan on January 1