The financial statements of AB, a listed company, disclose the following information on the Chairman’s pension entitlements:

(a) for the year ended 31 December 20X0 the pension fund is sufficient to pay the director a pension of £200,000 a year from his retirement date of 1 January 20X4;

(b) for the year ended 31 December 20X1 the pension fund is sufficient to pay the director a pension of £250,000 a year from his retirement date of 1 January 20X4.

It is expected that the pension fund will pay the director’s pension for 12 years, and the expected return on investments is 8% per annum.

Required:

Calculate the cost of the director’s pension entitlements for the year ended 31 December 20X1.

Note: The value of an annuity for 11 years at 8% is 7.139.

The present value of £1 at 8% for two years is 0.85734; for three years, 0.79383.

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