The pension service cost represents the value of the benefits provided to employees in the period. It is the present value of the additional pension rights earned. The service cost is an operating expense and an increase in the pension liability.
The amount is subjective and based on estimates such as life expectancy and future salary increases. If these estimates change or the actual outcome differs from that previously expected then, liability is updates and any increase or reduction is reported as a loss or gain in other comprehensive income.