An entity operates a pension plan that provides a pension of 2% of final salary for each year of service. On 1 January 2015, the entity improves the pension to 2.5% of final salary for each year of service, including service before this date. Employees must have worked for the entity for at least five years in order to obtain this increased benefit. At the date of the improvement, the present value of the additional benefits for service from 1 January 2011 to 1 January 2015, is as follows: $000

Employees with more than five years service at 1.1.X5 150 Employees with less than five years service at 1.1.X5 (average length of service: 2 years) 120 270

Required: Explain how the additional benefits are accounted for in the financial statements of the entity.