Lecture # 11

Employee Benefits IAS-19

Employees Benefits

Employee benefits are optional benefits provided to employee (hired on full-time, part-time, permanent,
casual or temporary basis) in the form of salary, wages and all other benefits and(or) perks paid to the
employees during or after employment.

Employee benefits include:

Short-Term Employee Benefits
Short term employee benefits are those benefits that are to be settled within 12 months of the end of the
reporting period in which the employee has rendered the services but do not include termination cost.
a. Monetary Benefits
such as wages, salaries and social security contributions, paid annual leave and paid sick leave,
profit-sharing and bonuses (if payable within twelve months of the end of the period) and
b. Non-Monetary Benefits (such as medical care, housing, cars and free or subsidized goods or
services) for current employees;

Disclosures-Short Term Employee Benefits

i. Record Expenses during the period

ii. Record Accrued Liability

The above recognition shall be made on actual value basis (not the discounted values).

Post-Employment Benefits
Such as pensions, other retirement benefits, post-employment life insurance and post-employment
medical care;
Other Long-Term Employee Benefits
Including long-service leave or sabbatical leave, Silver or golden Jubilee rewards or other long-service
benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the
end of the period, profit-sharing, bonuses and deferred compensation; and
Termination Benefits
It is the money paid to an employee whose employment has been terminated because of a closedown or
downsizing.
Profit-Sharing and Bonus Payments.

An entity recognizes the expected cost of profit-sharing and bonus payments when, and only when, it has
a legal or constructive obligation to make such payments as a result of past events and a reliable estimate
of the expected obligation can be made. infor mal or for mal arr ang ements where an entity provi des post-employment benefits to one or more employees, e.g. retir ement benefits (pensions or l ump sum payments), life ins uranc e and me dical car e.

The ac counting treatment for a pos t-employment benefit pl an depends on the ec onomic s ubstance of the pl an and results in the pl an being cl assifi ed as either a defined c ontribution plan or a defined benefi t plan:

Types of post-employment benefit plans

Post-employment benefit plans are informal or formal arrangements where an entity provides post-
employment benefits to one or more employees, e.g. retirement benefits
i. Pensions or Lump sum payments
ii. Life insurance &
iii. Medical care.

NOTE: The accounting treatment for a post-employment benefit plan depends on the economic substance
of the plan and results in the plan being classified as either a defined contribution plan or a defined benefit
plan:

Defined contribution plans.

Under a defined contribution plan, the entity pays fixed contributions into a fund but has no legal or
constructive obligation to make further payments if the fund does not have sufficient assets to pay all of
the employees' entitlements to post-employment benefits. The entity's obligation is therefore effectively
limited to the amount it agrees to contribute to the fund. Actuarial and investment risk is passes on to the
employees.
or simply

 Entity Makes fixed contribution into a fund.

 No legal or constructive obligation of further payment if insufficient funds are available to pay
employees at the end of service.
 Risk of insufficient funds pass on to the employees.
 Actuarial techniques are used.

Defined benefit plans

Defined benefit plans may be funded or non-funded. In such funds contributions are made by the
employer and some time by the employees. These contributions are kept in a fund/entity separate from the
reporting entity. Accounting for Defined benefit plan is more complex than defined contribution plan.
Actuarial services are used here to accurately estimate the value of expenses and liability to be
recognized. The liability is determined on discounted value (Present value Basis).
OR SIMPLY

 Contribution plan other than defined contribution plan.

 Obligation is on entity to provide agreed benefits to employees.
 Very effective actuarial planning is required.
Disclosures to the Financial Statements

A. Defined contribution plans

For defined contribution plans, the amount recognized in the period is the contribution payable in
exchange for service rendered by employees during the period.

Contributions to a defined contribution plan which are not expected to be wholly settled within 12 months
after the end of the annual reporting period in which the employee renders the related service are
discounted to their present value.
OR SIMPLY

I. Recognize as “Expense” the contribution made during the year against services rendered during
the year (Statement of comprehensive Income)
II. Recognize as “Liability” in the (Statement of Financial Position)
III. Recognition of expenses and liability are based on the following criteria;
a. On actual value basis if contributions are against services shall be settled with 12 months.
b. On discounted value basis if settlement is due beyond 12 months of services rendered.

B. Defined Benefit Plan

Recognize in the following way;
I. Service cost attributable to current or past periods.
II. Re-measure defined liability or asset on the actuarial basis.
III. Recognize actuarial gain or loss determined.

General Disclosure Requirements

a. Current service cost.

b. Interest Cost.
c. Expected return on any plan’s assets.
d. Actuarial gain or losses to be recognized.
e. Effect of any settlement made through the plan during the year.