In some cases, the carve-out entity’s employees participate in one or more defined benefit plans that are sponsored by the parent entity (or another entity in the consolidated group that is not part of the carve-out entity). While there is no specific guidance on accounting for such benefit plans in the carve-out financial statements, entities typically apply one of two methods: (1) a multiemployer approach or (2) an allocation approach. Under either approach, the carve-out entity’s income statement should reflect an allocated portion of the net periodic benefit cost on the basis of a reasonable allocation method, which should include, at a minimum, the allocable portion of service costs. The key difference between the two approaches is whether allocations of the plan’s benefit obligation, plan assets, and related AOCI balances are included in the carve-out entity’s balance sheet. The method chosen should be appropriately disclosed in the carve-out financial statements. Section 2.5.3 discusses considerations related to selecting an approach.
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