Explanation

When no plan contributions are made during the financial year, the year-end financial statements recognize the pension expense as an operating expense. This expense includes components such as service cost, interest cost, expected return on plan assets, and amortization of prior service costs.

• Option A (Correct): The pension expense is recognized in the income statement as an operating expense, even when no cash contributions are made.
• Option B: Incorrect because no cash outflow occurs when no contributions are made.
• Option C: Incorrect because pension expenses are not recorded in other comprehensive income; they affect the income statement directly.

The correct accounting treatment follows the matching principle, where the expense is recognized in the period when employees provide services, regardless of the timing of cash contributions.