Reference no: EM131819987

Golden Treasures Retirement Benefit Scheme is a defined benefit scheme that has been operating for the last 30 years. The General Manager cannot understand why the accountants have been charging a constant pension cost in the financial statement different from the amounts of actual contributions made during the period. The fund accountant has explained to him that this is as a result of the difference between funding and accounting for pension schemes in periods of pension scheme surpluses or deficits arising from variations in regular costs that are caused by factors such as experience adjustments and effects of changes in actuarial assumptions.

Required:

(a). With reference to IAS 19 (Employee Benefits), revised, define the following terms:

(i). Experience adjustments. (2 marks)

(ii). Accrued benefit valuation methods. (2 marks)

(iii). Current service cost (2 marks)

(iv). Vested employee benefits (2 marks)

(b). The actuarial valuation of Golden Treasures Retirement Benefit Scheme as at 31 December 2001 showed a deficiency of Sh.90 million. The actuary recommended that the company eliminated the deficiency by three lump sum payments of Sh.30 million each in addition to the standard contribution of Sh.10 million per annum. The contributions would continue at Sh.10 million per annum thereafter. The average remaining service life of employees in the scheme as at 31 December 2001 was 10 years.

Required:

Determine the charge in the income statement and the figure to be disclosed in the scheme's balance sheet as a net pension liability or prepayment in each of the years 2002 to 2011. (6 marks)

(c). Suppose the actuarial valuation at 31 December 2001 of Golden Treasures Retirement Benefit Scheme showed a surplus of Sh.260 million. The actuary then recommended that the company eliminates this surplus by taking a contribution holiday for the first two years, and then pay yearly contributions of Sh.30 million for eight years. After the eight years, the standard contribution would be Sh.50 million per annum. The average remaining service life of employees in the scheme as at 31 December 2001 was 10 years.

Required:

Compute the figure to be charged in the income statement and the figure to be disclosed in the balance sheet of the scheme as a net pension liability or prepayment in each of the years 2002 to 2011.