Section B – TWO questions ONLY to be attempted William is a public limited company and would like advice in relation to the following transactions. (a) William owned a building on which it raised finance. William sold the building for $5 million to a finance company on 1 June 2011 when the carrying amount was $3·5 million. The same building was leased back from the finance company for a period of 20 years, which was felt to be equivalent to the majority of the asset’s economic life. The lease rentals for the period are $441,000 payable annually in arrears. The interest rate implicit in the lease is 7%. The present value of the minimum lease payments is the same as the sale proceeds. William wishes to know how to account for the above transaction for the year ended 31 May 2012. (7 marks) (b) William operates a defined benefit scheme for its employees. At June 2011, the net pension liability recognised in the statement of financial position was $18 million, excluding an unrecognised actuarial gain of $15 million which William wishes to spread over the remaining working lives of the employees. The scheme was revised on 1 June 2011. This resulted in the benefits being enhanced for some members of the plan and because benefits do not vest for these members for five years, William wishes to spread the increased cost over that period. However, part of the scheme was to be closed, without any redundancy of employees. William requires advice on how to account for the above scheme under IAS 19 Employee Benefits including the presentation and measurement of the pension expense. (7 marks) (c) On 1 June 2009, William granted 500 share appreciation rights to each of its 20 managers. All of the rights vest after two years service and they can be exercised during the following two years up to 31 May 2013. The fair value of the right at the grant date was $20. It was thought that three managers would leave over the initial two-year period and they did so. The fair value of each right was as follows: On 31 May 2012, seven managers exercised their rights when the intrinsic value of the right was $21. William wishes to know what the liability and expense will be at 31 May 2012. (5 marks) (d) William acquired another entity, Chrissy, on 1 May 2012. At the time of the acquisition, Chrissy was being sued as there is an alleged mis-selling case potentially implicating the entity. The claimants are suing for damages of $10 million. William estimates that the fair value of any contingent liability is $4 million and feels that it is more likely than not that no outflow of funds will occur. William wishes to know how to account for this potential liability in Chrissy’s entity financial statements and whether the treatment would be the same in the consolidated financial statements. (4 marks) Required: Discuss, with suitable computations, the advice that should be given to William in accounting for the above events. Note: The mark allocation is shown against each of the four events above. Professional marks will be awarded in question 2 for the quality of the discussion. (2 marks)