Reference no: EM133208545

Question

Beavers plc, an engineering company operates a defined benefit pension plan for its employees. The directors of Beavers plc have adopted the revised provisions of IAS 19(R) Employee Benefits. The following information relates to the Beaver's pension scheme:

At 1 January 20x3 the fair value of the pension plan assets was £3,700,000 and the present value of the pension plan obligations was £3,900,000. The actuary estimated that the service cost for the year to 31 December 20x3 was £1,100,000. The pension plan paid £340,000 to retired members and Beavers paid £760,000 in contributions to the pension plan in the year to 31 December 20x3. The actuary estimated that the relevant discount rate for the year to 31 December we was 5 per cent. At 31 March 20x3 the fair value of the pension plan assets was £4,400,000 and the present value of the pension plan obligations was £4,700,000.

1. Calculate net actuarial gain or loss (stating which) that will be included in the other comprehensive income for the year ended 31 December 20x3. You are required to show your workings as fully as possible.

2. Calculate the expense that will be charged to Beaver's profit for the year ended 31 December 20x3 in respect of this pension plan. Prepare, in accordance with IAS 19 (revised) Employee Benefits, the pension extracts in the statement of financial position.

3. The directors of Beavers have heard that under alternative accounting jurisdictions (US GAAP) actuarial gains and losses can be immediately recognised in profit or loss or deferred. Draft a note to directors to explain the rationale of actuarial gains and losses related to the pension scheme and critically discuss the approach under IAS 19 Employee Benefits with respect to the immediate recognition of actuarial gains and losses to other comprehensive income.