CFA Level 2 | FRA: Total Periodic Pension Costs

[@MURILAOBONITAO]

The best explanation about a topic full of intricated details and that usually we don't see on day by day finance. Amazing, thanks and congratulations!

[@jeandaniel521]

Every time I get confused on this subject, I rewatch this video. Thankss

[@FabianMoa]

Glad that the video is helpful in your learning process 🙏

[@lennythellam]

Thank you for this video. It was super super super helpful. Hope all CFA level II candidates learn from this before their exams.

[@FabianMoa]

Thanks!!

[@gb9348]

Amazing. Thanks man! Talented instructor

[@FabianMoa]

Glad you liked it!

[@chaitanya1472]

Brilliantly summed up for revision:) Glad to have come across this.

[@austinvrabel9414]

I love your videos! These were very helpful with some of my trouble areas. Looking forward to watching some of your videos for Level 3

[@FabianMoa]

Thanks, Austin! Let me know the good news when you enrol for the Level 3 exam

[@bryank6933]

I rarely comment on videos but thank you so much. Your video was very easy to understand.

[@FabianMoa]

I appreciate that!

[@johnnywong9652]

thank you very much. it really helps me understand the topic much better

[@Stalysfa]

I don't understand the change of sign at 6:60 about the Periodic pension costs in OCI (IFRS) where you state "+ Interest income - Actual return" while the formula previously stating how we split the different accounts between OCI and Income statement (at 1:37) where you state "+ Actual return - (Discount rate x Beginning Plan Assets)". So you're using two different signs here right ? I don't understand why.

[@pratikshah1735]

Exactly, Even I am confused with the same thing.

[@danmchardy6424]

At 6:50 it's written from the perspective of cost. That's why.

[@rikki146]

sir, you are my life saver. please accept my most sincere gratitude.

[@FabianMoa]

You're welcome!

[@WernervanWyk2]

Fabian Legend! Keep up the great stuff!

[@mehedihassan391]

Thank you sir...yours videos are so helpful

[@FabianMoa]

You are most welcome, Mehedi

[@Moink2209]

Another helpful one, Fabian!

[@FabianMoa]

No problem. Probably one on REIT Valuation soon.

[@jdjd605]

why are the OCI effects at 2:45 ( adding actuarial gain / subtracting the loss, adding actual return) under both IFRS and GAAP different to the effects when you show them at 6:52 and at 8:13???????

[@soussoukarim937]

Excellent work, thank you

[@FabianMoa]

My pleasure!

[@KD-el9uq]

Thanks for a great video. How testable is this really on the L2 exam? Maybe more of interpreting certain values or changes, but calculations?...

[@FabianMoa]

Calculations can be tested

[@mrudangidesai9103]

I absolutely love your videos! do you have any more on FRA Level 2? i see this one and one for goodwill but no other ones :( please let me know

[@FabianMoa]

Thanks for the feedback, Mrudangi! I have only those videos at the moment. Will try to release more videos over the coming weeks. Look out for it 💫

[@aaappp-wp7vo]

Thank you!

[@AndriFitness]

@fabian please can you post more FRA Level 2 content? your content is amazingly helpful

[@FabianMoa]

Hi Andri, focusing more on Level 1 videos. Will post more videos on Level 2 in February

[@AndriFitness]

@@FabianMoa thanks !

[@jamalbaghirov2855]

Hey Fabian! Thanks for the amazing video. I got confused a little bit in the derivation of TPPC. I got how you derived it, but the curriculum says TPPC = End fund status - Beg fund status - Employer contributions. However, in your case it is "+ Employer contributions". Can you please clarify this?

[@FabianMoa]

The textbook version would produce a negative number for the TPPC, which would be odd because a negative expense would indicate higher earnings. If you go through the video, you will observe that when I rearranged the formula to get the TPPC, it should be based on the equation that I showed. In any case, it won't matter too much for the exam because the magnitude would be the same (just different signs)

[@Farneze1990]

THANK YOU!!!!!!

[@akeithkira]

I have a rather confusing point here. Looking at CFA latest 2020 Errata release, I'm having a hard time to cope with the consistency and accuracy of CFAI Curriculum. Specifically in Practice Q9 and Q10, the Errata mentioned a correction in which the interest cost is calculated by taking in the Past Service Cost. This is quite different from their own Curriculum and Schweser. CFAI : InterestCost = (PBO) * r% NetInterestExpense = (PBO - AssetFairValue) * r% Errata : InterestCost = (PBO + PastServiceCost) * r% NetInterestExpense = (PBO + PastServiceCost - AssetFairValue) * r% Can you help to clarify on this ?

[@FabianMoa]

Thanks for the info! I was surprised to find out about the errata as well. They have been using these for the last few years (for as long as I can remember): InterestCost = (PBO) * r% NetInterestExpense = (PBO - AssetFairValue) * r% Not sure the reason about the recent change (based on the errata), unless they are implying the PSC should be included in beginning PBO because it was supposed to be in since the previous period. Trying to check for more supporting reasons on why they want to use (Beginning PBO + PSC)

[@akeithkira]

@@FabianMoa yea exactly, Im now really confused. The question never state if the company is under USGAAP or IFRS. The only rationale im trying to force myself to accept is : (1) the company is under USGAAP (2) due to the past service cost is explicitly given in the exhibit (3) Hence, when Q9 asked if it is under IFRS, the past service cost has to be added in as under IFRS there should not have PSC component. However it makes more sense if it is added to SC instead of PBO. And, inside the errata, they also corrected both Q10. Im not sure what it means by "while this does not change the solution". Which answer is correct then ? Will you be checking with CFAI ?

[@arnoldachiri4810]

@@akeithkira One Schwezer Video of 2017 that I watched states that the formula for interest cost is only valid if discount rate remains thesame. I guess one can conclude that different past service costs will definitely have an impact on the interest cost if we are to consider the equation; Ending PBO = Beginning PBO + Service cost + Interest Cost + Past Service cost - benefits paid + (-) Actuarial Loss (gain). Thanks for your remark though! Even with that remark, I've always used the formula you stated above!

[@veljkopolumirac4605]

Thank you!

[@FabianMoa]

You're welcome!

[@longvjp555]

THANK YOU!!!!!!

[@FabianMoa]

No problem!

[@longvjp555]

@@FabianMoa Can you give me some advise, it 's just a few day to the exam and I feel like I forgot alot of knowledge even though I studied it all

[@FabianMoa]

Finish all the mock exams you have, try to browse through and memorize all the formulae. During exam time, start from your strongest topic first. All the best!