(a) Distinguish between defined contribution pension plans and defined benefit pension plans.
(b) A company’s agreed contributions to a defined contribution plan for 2017 are £350,000. Of this sum, the company had paid £320,000 by the end of the year. It is becoming clear that the pension fund assets will be insufficient to finance the expected level of employee benefits and that the company would have to increase its annual contributions by 50% if employee expectations were to be met.
Calculate the expense which should be shown in the statement of comprehensive income for the year to 31 December 2017 in relation to this plan. Also calculate the amount of the liability which should appear in the statement of financial position.
(c) Explain why accounting for a defined benefit plan is much more difficult than accounting for a defined contribution plan.
