Question: What is meant by “past service cost”? When is past service cost recognized as pension expense?

The statement of profit and loss is a report prepared to ascertain the profits earned or losses incurred during one accounting period throughoperating and non-operating activities.This report includes the revenues and associated expenses of the business concern.

When an employee is allowed to revise his/her pension, in such a case, the benefits earned prior to the revision are termed past service cost. The variations in past service costs can be negative or positive depending upon therevision terms.

The accounting treatment for past service expenses is as follows:

• Such costs should be immediately recorded in thestatement of profit and losswhen an employee is entitled to receive the amount.
• Also, such benefits should be recorded on astraight-line basis in the profit and loss statement.