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$20\mathrm{.}2$ million. Scheme

assets of CUi$9\mathrm{.}4$ million at the beginning of the year were expected to be enhanced by a cash

contribution to the scheme of CUO. $4$ million greater than payments to pensioners. An appropriate

discount rate of $10\%$ has been identified.

Based on these figyres Mr Cork has prepared the following reconciliation.

The deficit of CU$1\mathrm{.}54$ 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 $31$ December $20$X$1.$

$($b$)$ Identify two benefits to Straw Holdings Ltd of moving from a defined benefit to a defined

contribution scheme.