The Examiner's Answers – F2 - Financial Management May 2011

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The Examiner's Answers – F2 - Financial Management Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike.

SECTION A Answer to Question One

(a)

Calculation of the actuarial gain/losses in year to 31 December 2010 FV of plan assets $000 2,600

Opening balance Service cost Interest cost (8% x $2,900,000) Expected return (5% x $2,600,000) Past service cost Benefits paid Contributions

130 (240) 730 3,220 180

Actuarial gain on assets Actuarial loss on liabilities Closing balance

(b)

PV of plan liabilities $000 2,900 450 232

3,400

90 (240) 3,432 68 3,500

SARs are an example of a cash-settled share-based transaction and, in accordance with IFRS 2 Share-based payments, are initially measured at fair value at the grant date and subsequently remeasured to fair value at each year-end. The liability is remeasured and any difference is charged to the income statement as an expense. (This explanation is not a required part of the answer but is included to aid understanding.) 2009 Eligible employees (300-32-35) = 233 Equivalent cost of SARs = 233 employees x 1,000 rights x FV$8 = $1,864,000 Allocate over 3 year vesting period $1,864,000/3 = $621,333 equivalent charge to the income statement in the first year. 2010 Eligible employees (300-32-28-10) = 230 Equivalent cost of SARs = 230 employees x 1,000 rights x FV$12 = $2,760,000 Cumulative amount to be recognised as a liability = $2,760,000 x 2/3 years = $1,840,000 Less amount previously recognised = $1,840,000-621,333 = $1,218,667 The expense will be recorded as: Dr staff costs $1,218,667 Cr liability

Financial Management

$1,218,667

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May 2011


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The Examiner's Answers – F2 - Financial Management May 2011 by Chartered Institute of Management Accountants - Issuu