Harper is a company with a financial year-end of 31 December 2020. The following information is available:

1. Harper has paid an annual bonus of €100 to its employees ever since the company was founded. As of 31 December 2020, Harper has 100 employees and the bonus has not yet been paid to employees.
2. On 1 January 2019, Harper offered a bonus to its Chief Executive Officer (CEO). The CEO will receive 50 share options provided that he remains in service for three years (to the year ended 31 December 2021). As at 1 January 2019, the fair value of the share option was €6. As of 31 December 2019, Harper expected the CEO to remain in service, however, the CEO subsequently resigned in July 2020.
3. Harper has a defined benefit pension scheme for its employees. As at 1 January 2020, the pension scheme assets were worth €1 500 000 and the obligations were estimated by the actuaries at €1 600 000. Harper contributed €100 000 into the scheme during the year and €75 000 was paid out in benefits to retired members. In 2020, the plan was amended to provide additional benefits with effect from 1 January 2020. The present value of additional benefits for employee service before 1 January 2020 was €50 000. Actuaries estimate that the current service cost is €80 000 (which includes the additional benefits from the plan amendment). Actuaries estimate the relevant interest rate is 5%. By 31 December 2020, the pension scheme had assets of €1 700 000 and obligations estimated by the actuaries of €1 800 000.

Required

1. Explain how Harper should account for the annual bonus in its financial statements for the year ended 31 December 2020. Your answer should include the appropriate journal entries and explain any assumptions that you make.
2. Explain how Harper should account for the bonus offered to its CEO for the year ended 31 December 2020. Your answer should include the appropriate journal entries.
3. Calculate the amount that Harper should include in its statement of financial position as at 31 December 2020 in respect of the defined pension scheme.
4. Calculate the expense that will be charged to Harper’s profit for the year ended 31 December 2020 in respect of the defined benefit pension scheme.
5. Calculate the net actuarial gain or loss that will be included in Harper’s other comprehensive income in respect of the defined benefit pension scheme for the year ended 31 December 2020. Your answer should clearly state whether it is a net gain or a net loss.

Answer rating: 100% (QA)

a The annual bonus should be accounted for in Harpers financial statements for the year ended 31 Dec... View the full answer