As we discussed earlier, gains and losses (either from changing assumptions regarding the PBO or from the return on assets being higher or lower than expected) are deferred and not immediately included in pension expense and net income. Instead, we report them as other comprehensive income in the statement of comprehensive income. So Global records a loss-other comprehensive income for the $23 million loss that occurs in 2007 when it revises its estimate of future salary levels causing its PBO estimate to increase as well as a $3 million gain-other comprehensive income that occurred when the $30 million actual return on plan assets exceeded the $27 million expected return. Here’s the entry:

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The loss increases the PBO, and the gain increases plan assets. Since the pension liability is the excess of the PBO over the plan assets, when the PBO goes up by $23 million, the pension liability goes up. But when the plan assets go up by $3 million, the pension liability goes down. As a result, the pension liability increases by $20 million.

Remember, gains and losses become part of either a net loss-pensions or a net gain-pensions account (net loss-pensions in Global’s case), which is a component of accumulated other comprehensive income, a shareholders’ equity account.