Amortization of the net actuarial gain or loss is to be included as a component of ________________benefit cost for a year

Question

Options

• Anet postretirement
• Bnet preretirement
• CGross postretirement
• DGross preretirement

• A
  83% (24)
• B
  3% (1)
• C
  10% (3)
• D
  3% (1)

Explanation

Amortization of net actuarial gain or loss is one of the six defined components of net postretirement benefit cost under US GAAP (ASC 715-60 / SFAS 106), which governs employer accounting for postretirement benefits such as retiree health care. The word "net" is critical because the total cost is calculated by offsetting items against each other (e.g., expected return on plan assets reduces the gross cost), making the final figure a net amount.

Why the distractors fail:

• B (net preretirement): "Preretirement" is not a recognized GAAP benefit cost category - postretirement refers to benefits paid after retirement, which is the correct context here.
• C (Gross postretirement): The term "gross" is incorrect; GAAP uses "net" because expected return on plan assets and other offsets are netted against cost components before reporting.
• D (Gross preretirement): Wrong on both counts - neither "gross" nor "preretirement" applies to this standard.

Memory tip: Think POST-retirement = benefits paid to retirees (after they leave), and NET = the standard always presents the final figure net of offsets. If you remember "net post," you eliminate all three distractors at once.

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