QUESTION 2 (25 MARKS: 45 MINUTES) Chencai Berhad has specific accounting policies for employee benefits and government grants. The Accountant of the company is fully aware on the introduction and application of new FRS 119 and FRS 120 concerning the employee benefits and the government grants respectively. The following are information that relevant to both accounting policies: 1. Chencai Berhad has a defined benefit plan whereby the employees will receive 10% of their last drawn annual salary for each year of service, subject to a maximum of ten years. The current salary of an employee is RM20,000 and his salary is expected to rise by 5% compounded per annum. The current discount rate is 10%. 2. Chencai Berhad acquired a plant at a gross cost of RM1.6 million on 1 October 2011. The plant has an estimated economic life of ten (10) years with residual value equal to 10% of its gross cost. The company uses the straight-line depreciation on a time apportioned basis. At the time of its purchase, the company received a government grant of 30% of its cost price. One of the terms of the grant is that if the company retains the plant for five years or more, then there is no repayment liability. If the company sells the plant within one year it has to repay 75% of the cost. This amount decreases by 20% in succeeding years. 3. Chencai Berhad has no intention of disposing the plant within five years. Its policy for capital-based government grants is to treat them as deferred credits and release them to income over the life of the asset to which they relate. Required: (a) For employee benefits, using the projected unit credit method, calculate the followings: i. Current service cost and interest cost that will be charged in the statements of comprehensive income for the first FIVE (5) years. (5 marks) ii. Liability that will be disclosed in the statements of financial position for the first FIVE (5) years. (7 marks) (b) Discuss whether the company's policy for the treatment of government grants meets the definition of a liability in MASB's Framework. (5 marks) (c) Prepare extracts of Chencai's financial statements for the year ended 30 March 2012 in respect of the plant and grant, applying the company's policy and in compliance with the definition of liability in the Framework. (8 marks)