Accounting for Pension Plans & General Motors

Accounting for Pensions
Student’s Name
Institution
Accounting for Pensions
Question 1
Mark-to-market accounting method for pension accounting is easier to understand as it offers a clear picture on how actuarial gains and losses should be recognized as opposed to their amortization annually. The method can provide a snapshot of the current performance of the pension plan. It enables the firms to recognize pension expense with immediate effect rather than capitalize or amortize the costs. Based on this procedure costs become more transparent (Allen & Carletti, 2008). If transparency is improved, there will be a trickledown effect which will make the operating performance of the pension plans easy to understand.
Since the Mark-to-market accounting method focusses on recognition of gains and losses in the fourth quarter of every year rather than amortizing the latter from one year to another, earning volatility cannot be evaluated effectively. Therefore, the Mark-to-market accounting method does not provide a fair representation of the pension obligations (Allen & Carletti, 2008).
Question 2
GAAP rules provide that accrual basis of accounting should be used in accounting for the pension costs. This is a good idea since the compensation cost for workers is recognized over the years of service they have served. On the income statement, the pension expense is recorded in three categories; service cost, interest cost and expected return on assets. As elements of…