Question 18Q What is the meaning of 鈥渃orrid... [FREE SOLUTION]

Chapter 20: Question 18Q (page 1161)

What is the meaning of 鈥渃orridor amortization鈥�?

Short Answer

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Amortizationis a term usedto bifurcate the amount into multiple accounting yearstominimize the burden of rendering losses. Organizations amortize their loss tooffset the amount against the gain earned.

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Introduction

The rate of the corridor that is being implied on the amount of projected benefit obligation is 10%. It is used in ascertaining the net periodic pension cost of an organization.

Corridor amortization

Corridor amortization is a term used when the organization's unrealized net gain or net loss exceeds 10% of the opening balance of defined benefit obligation as prescribed under the IASB criterion. The difference amount between the two should be amortized in a pension worksheet by the organization. The main thing that has to be noted here is that the total amount of the net gain or loss amortized should be less than the actual amount of amortization computed by taking into consideration the average remaining years of service of an employee.