British Airways, Plc. (BA), a U.K. company, prepares its financial statements according to International Financial Reporting Standards. BA's annual report for the year ended March 31, 2009, which includes financial statements and disclosure notes, is included with all new textbooks and can be found at www.britishairways.com. When answering questions, focus on BA's “Group” financial information (which is equivalent to “Consolidated” under U.S. GAAP).

Required:
1. Look at Note 36, part c. What amount of past service cost (called prior service cost under U.S. GAAP) did BA recognize in earnings for the year ended March 31, 2009? The Employee Benefit section within Note 2: “Summary of significant accounting policies” in BA's financial statements states that “Past service costs are recognised when the benefit has been given.” Is this policy consistent with U.S. GAAP? Explain.
2. The Employee Benefit section within Note 2: “Summary of significant accounting policies” in BA's financial statements states that:
“The asset or liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets, together with adjustments for unrecognised past service costs. Where plan assets exceed the defined benefit obligation, an asset is recognised to the extent that an economic benefit is available to the Group, in accordance with the terms of the plan and applicable statutory requirements.” Is this the way pension plans are reported under U.S. GAAP? Explain.
3. U.S. GAAP requires that unrecognized actuarial gains and losses be included as part of Accumulated other comprehensive income (AOCI) in shareholders' equity. Under IFRS, AOCI often is referred to as a “reserve.” Does BA report its unrecognized actuarial gains and losses this way? Explain. [Hint: see Note 35: Other reserves and minority interests.]
4. Locate Note 36: “Pension costs,” part c “Amounts recognised in the income statement.” Which components of pension expense does BA actually report in the operating profit (loss) section of its income statement? Where are the other components reported? Is this approach consistent with U.S. GAAP? Explain.