The Chief Executive Officer of your company Hoota Limited wants you to explain the accounting treatment of the following transactions following your return from an IFRS workshop on various accounting standards. You are the finance manager of your company.

Transaction One

Hoota Limited introduced two pension schemes, CON and BEN on 1 April 2019 for the benefit of its employees. The following information relates to the two schemes as at 1 April 2020:

CON Scheme

Under this scheme the companys obligation is limited to its fixed annual contribution of K600,000. The membership of this pension scheme is senior management staff of the company.

At 1 April 2019, there were contributions paid in advance for the year ending 31 March 2020 amounting to K150,000. In the year ending 31 March 2020, the company made total contribution of K1,040,000 out of which K200,000 related to the year ending 31 March 2021. During the year to 31 March 2021, total contributions of K1,400,000 were made out of which K250,000 were made in advance for the year that followed.

BEN Scheme

Under this scheme, the company guarantees benefits to the employees when they reach 60 years or after working for the company for 30 years whichever comes earlier. The membership of this pension scheme is employees other than senior management staff.

The following relates to the pension scheme: K000

Net plan assets at 1 April 2020 500

Current service cost 2,000

Contributions paid 800

Pension benefits paid 400

Net plan liability at 31 March 2021 200

Appropriate annual discount rate 12%

During the year to 31 March 2021, Hoota Limited adjusted the formula used to calculate the benefits payable to employees. This resulted in a decrease of K510,000 in pension benefits payable to employees.

Contributions and pension benefits were all paid at 31 March 2021.

The company has only recorded contributions paid in its financial statements for the year to 31 March 2021.

Required:

Explain how the two schemes, CON and BEN should be treated in the financial statements of Hoota Limited for the year to 31 March 2021.

Note: Include all relevant calculations in your explanation. (10 marks)