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John Cork, financial director of Straw Holdings Ltd , your audit client, has recently written to you for advice on pension scheme accounting. The company's
John Cork, financial director of Straw Holdings Ltd your audit client, has recently written to you for
advice on pension scheme accounting.
The company's defined benefit pension scheme has net assets valued at CU million. Scheme
assets of CUi million at the beginning of the year were expected to be enhanced by a cash
contribution to the scheme of CUO. million greater than payments to pensioners. An appropriate
discount rate of has been identified.
Based on these figyres Mr Cork has prepared the following reconciliation.
The deficit of CU million has come as a surprise to Mr Cork. He is unsure how to treat this
deficit in the financial statements and concerned about the impact it will have on the company's
profits.
Requirements
a Explain the impact of the actuarial valuation of the scheme's assets and the resultant deficit on
the financial statements of Straw Holdings Ltd for the year ended December X
b Identify two benefits to Straw Holdings Ltd of moving from a defined benefit to a defined
contribution scheme.
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