2 Macaljoy, a public limited company, is a leading support services company which focuses

on the building industry.

The company would like advice on how to treat certain items under IAS19, ‘Employee Benefits’ and IAS37 ‘Provisions,

Contingent Liabilities and Contingent Assets’. The company operates the Macaljoy (2006) Pension Plan which

commenced on 1 November 2006 and the Macaljoy (1990) Pension Plan, which was closed to new entrants from

31 October 2006, but which was open to future service accrual for the employees already in the scheme. The assets

of the schemes are held separately from those of the company in funds under the control of trustees. The following

information relates to the two schemes:

Macaljoy (1990) Pension Plan

The terms of the plan are as follows:

(i) employees contribute 6% of their salaries to the plan

(ii) Macaljoy contributes, currently, the same amount to the plan for the benefit of the employees

(iii) On retirement, employees are guaranteed a pension which is based upon the number of years service with the

company and their final salary

The following details relate to the plan in the year to 31 October 2007:

Warranties

Additionally the company manufactures and sells building equipment on which it gives a standard one year warranty

to all customers. The company has extended the warranty to two years for certain major customers and has insured

against the cost of the second year of the warranty. The warranty has been extended at nil cost to the customer. The

claims made under the extended warranty are made in the first instance against Macaljoy and then Macaljoy in turn

makes a counter claim against the insurance company. Past experience has shown that 80% of the building

equipment will not be subject to warranty claims in the first year, 15% will have minor defects and 5% will require

major repair. Macaljoy estimates that in the second year of the warranty, 20% of the items sold will have minor defects

and 10% will require major repair.