The need to provide retirement benefits for employees, has become a major concern for many companies. This concern, has led to the establishment of pension plans in most large companies and in many medium-and small-sized ones. The substantial growth of these plans, both in the numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension cost in relation to the financial position, results of operations, and cash flows of many companies.

In examining the costs of pension plans, a public accountant encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if IFRS is to be reflected in the financial statements of entities with pension plans.

Instructions:

1. Define a pension plan. How does a contributory pension plan differ from a non-contributory plan? (1 mark)
2. Differentiate between accounting for the employer and accounting for the pension fund. (2 marks)
3. Discuss the theoretical justification for accrual recognition of pension costs. (1 mark)
4. Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs. (1 mark)

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