Vassiliki Doukas is analysing the cash flow statement of a hypothetical company, Geo- Race plc, as part of a valuation. Doukas suggests to her colleague, Dimitri Krontiras, that the difference between the company’s contributions to the pension plan and the total pension costs incurred during a period is similar to a form of borrowing or a repayment of borrowing, depending on the direction of the difference; this affects the company’s reported cash from operating activities and cash from financing activities.

Based on information from the company’s 2009 annual report (currency in ₤ millions), she determines that the company’s total pension cost was ₤437; however, the company also disclosed that it made a contribution of ₤504. GeoRace reported cash inflow from operating activities of ₤6,161 and cash outflow from financing activities of ₤1,741. The company’s effective tax rate was 28.7 percent.

Use the information provided to answer the following questions:

1. How did the company’s 2009 contribution to the pension plan compare with the total pension cost for the year?

2. How would cash from operating activities and financing activities be adjusted to illustrate Doukas’ interpretation of the difference between the company’s contribution and the total pension cost?