Determine whether there is a gain or a loss on Disposal on Asset. In contrast, an actuarial loss occurs when the employer pays more than the projected amount. certification program, designed to help anyone become a world-class financial analyst. When accounting for actuarial gains or losses, actuaries take into consideration many factors, such as employee salaries, retirement rates, mortality rates, inflationInflationInflation is an economic concept that refers to increases in the price level of goods over a set period of time. Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. Compare the sum received for the sale of the asset with the original estimate made of its residual value upon disposal. Debiting means to record a sum on the right side of the ledger while crediting means to record a sum on the left side. Typically, companies keep reserves from which pension premiums are paid out. The disclosure of pension details can also provide investors and regulators with a greater understanding of the financial position of a company. The rise in the price level signifies that the currency in a given economy loses purchasing power (i.e., less can be bought with the same amount of money). ensures that once an employee retires, they will receive regular pension payments to support their living expenses. Determine the debits and credits needed in the journal entry. Often, the employer pension acts as a secondary source of funding in addition to government-provided retirement funds, such as Social SecuritySocial Security BenefitsSocial Security benefits are benefit payments that are made to qualified retirees and people who are disabled, including their spouses and children. If the cash received is greater than the asset's book value, the difference is recorded as a gain. Such cases can be identified by the fact that the value of the asset account is higher than the value of its Accumulated Depreciation and the sale of the useless asset must be included in the above entry. Copyright © 2020 AccountingCoach, LLC. As mentioned above, there needs to be a debit equal to the full value of the asset's Accumulated Depreciation, a credit equal to the full value of the asset, a debit under the account of Cash equal to the sum received for the sale if there was a sale, and either a debit or a credit under Loss or Gain on Disposal of Asset. The reserves are based on projections of the pension benefits a company expects to pay out over time. A defined-contribution plan (also known as a DC plan) is a type of pension fund payment plan to which an employee, and sometimes an employer. Differences between an employer’s actual pension payments relative to the expected payments. Some gains and losses are net results of comparing the proceeds and sacrifices (costs) in incidental transactions with other entities—for example, from sales of investments in marketable securities, from disposition of used equipment, or from settlement of liabilities at other than their carrying amounts. If the actual residual value upon disposal had been $1,000 and there had been a Loss on Disposal of Asset of $1,000, then the journal entry would have included debits of $8,000 to Accumulated Depreciation, $1,000 to Cash or its equivalent, and $1,000 to Loss on Disposal of Asset in addition to a credit of $10,000 to the asset account. For example, assuming that an asset has value of $10,000, Accumulated Depreciation of $8,000, estimated residual value upon disposal of $2,000, and actual residual value upon disposal of $3,000, then upon its disposal there needs to be debits of $8,000 to Accumulated Depreciation and $3,000 to Cash or whatever was used by the buyer to pay for the sale and credits of $10,000 to the asset account and $1,000 under Gain on Disposal of Asset. Keep in mind that debiting an Accumulated Depreciation account means that it is being emptied, much as crediting an asset account means the same. Actuarial gains or losses refer to the differences between an employer’s actual pension payments relative to the expected payments.