Question 2a

Delta prepares its financial statements to 30 September each year. The financial statements for the year ended 30 September 2017 are shortly to be authorised for issue. The following events are relevant to these financial statements:

(a) Delta operates a defined benefit retirement benefits plan on behalf of current and former employees. Delta receives advice from actuaries regarding contribution levels and overall liabilities of the plan to pay benefits. On 1 October 2016, the actuaries advised that the present value of the defined benefit obligation was $60 million. On the same date, the fair value of the assets of the defined benefit plan was $52 million. On 1 October 2016, the annual market yield on high quality corporate bonds was 5%.

During the year ended 30 September 2017, Delta made contributions of $7 million into the plan and the plan paid out benefits of $4·2 million to retired members. You can assume that both these payments were made on 30 September 2017.

The actuaries advised that the current service cost for the year ended 30 September 2017 was $6·2 million. On 31 August 2017, the rules of the plan were amended with retrospective effect. These amendments meant that the present value of the defined benefit obligation was increased by $1·5 million from that date.

During the year ended 30 September 2017, Delta was in negotiation with employee representatives regarding planned redundancies. The negotiations were completed shortly before the year end and redundancy packages were agreed. The impact of these redundancies was to reduce the present value of the defined benefit obligation by $8 million. Before 30 September 2017, Delta made payments of $7·5 million to the employees affected by the redundancies in compensation for the curtailment of their benefits. These payments were made out of the assets of the retirement benefits plan.

On 30 September 2017, the actuaries advised that the present value of the defined benefit obligation was $68 million. On the same date, the fair value of the assets of the defined benefit plan were $56 million. (11 marks)

Required: 
Explain and show how the two events would be reported in the financial statements of Delta for the year ended 30 September 2017. When considering the reporting of events in the statement of comprehensive income, you should distinguish between events being reported in profit or loss from events being reported in other comprehensive income, where this is relevant. However, you do not need to comment on potential future reclassification issues.

Note: The mark allocation is shown against both of the two events above.