Kathryn Kathryn plc, a listed company, provides a defined benefit pension for its staff, the details of which are given below.

Pension scheme As at the 30 April 2004, actuaries valued the company’s pension scheme and estimated that the scheme had assets of £10.5 million and obligations of £10.2 million (using the valuation methods prescribed in IAS 19).

The actuaries made assumptions in their valuation that the assets would grow by 11% over the coming year to 30 April 2005, and that the obligations were discounted using an appropriate corporate bond rate of 10%.The actuaries estimated the current service cost at £600,000.The actuaries informed the company that pensions to retired directors would be £800,000 during the year, and the company should contribute £700,000 to the scheme.

At 30 April 2005 the actuaries again valued the pension fund and estimated the assets to be worth

£10.7 million, and the obligations of the fund to be £10.9 million.

Assume that contributions and benefits are paid on the last day of each year.

Required:

(a) Explain the reasons why IAS 19 was revised in 1998, moving from an actuarial income driven approach to a market-based balance sheet driven approach. Support your answer by referring to the Framework Document principles.

(b) Show the extracts from the income statement, statement of movement in equity and balance sheet of Kathryn plc in respect of the information above for the year ended 30 April 2005.You do not need to show notes to the accounts.

[The accounting policy adopted by Kathryn plc is to recognise actuarial gains and losses immediately in equity as allowed by IAS in its 2004 amendment.]