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Intermediate Accounting (Kieso)
Found in: Page 1192

Short Answer

Question: What is service cost, and what is the basis of its measurement?


Service cost represents the benefit attributed to the service of employees.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Cost

The term cost refers to the amount of money spent by an individual or a business concern to acquire goods or services. In accounting, costs are recorded in the books and matched with the revenues to compute profit or loss.

Step 2: Meanings of the service cost and its measurement

The term service cost refers to the actual present value of the benefit (used in the pension benefit formula) attributable to the service of employees during the respective period. If the pension benefit is based on future compensation, then the service cost is also based on those future compensation levels.

Basis of measurement:

When measuring the service cost, all direct and indirect cost is considered, and other costs incurred in relation to service are also added to the service cost.

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