EMPLOYEE

BENEFITS
PART 2
OTHER LONG-TERM
EMPLOYEE
BENEFITS
 OTHER LONG-TERM EMPLOYEE BENEFITS
 RESIDUAL DEFINITION: This category covers all other employee
benefits not classified as short-term, post-employment, or termination
employee benefits.

 Other long-term employee benefits include items such as the following,

if not expected to be settled wholly before twelve months after the
end of the annual reporting period in which the employees render the
related service:

(a) long-term paid absences such as long-service or sabbatical leave;

(b) jubilee or other long-service benefits;
(c) long-term disability benefits;
(d) profit-sharing and bonuses; and
(e) deferred remuneration. (IAS 19, par. 153)
 OTHER LONG-TERM EMPLOYEE BENEFITS
 The measurement of other long-term employee benefits is not usually
subject to the same degree of uncertainty as the measurement of
post-employment benefits.

 For this reason, this Standard requires a simplified method of

accounting for other long-term employee benefits.

 Unlike the accounting required for post-employment benefits, this

method does not recognize remeasurements in other
comprehensive income. (IAS 19, par. 154)
 OTHER LONG-TERM EMPLOYEE BENEFITS
RECOGNITION AND MEASUREMENT

 For other long-term employee benefits, an entity shall recognize the net
total of the following amounts in profit or loss, except to the extent that
another IFRS requires or permits their inclusion in the cost of an asset:

(a) service cost (see paragraphs 66–112 and paragraph 122A of IAS 19);
(b) net interest on the net defined benefit liability (asset) (see
paragraphs 123–126 of IAS 19); and
(c) remeasurements of the net defined benefit liability (asset) (see
paragraphs 127–130 of IAS 19). (IAS 19, par. 156)

 All amounts related to this category are recognized in profit or loss

unless specifically allowed by other accounting standards to be included
in the carrying amount of an asset.
 OTHER LONG-TERM EMPLOYEE BENEFITS
RECOGNITION AND MEASUREMENT

 One form of other long-term employee benefit is long-term disability

benefit.

 If the level of benefit depends on the length of service, an obligation

arises when the service is rendered.

 Measurement of that obligation reflects the probability that payment

will be required and the length of time for which payment is expected
to be made.

 If the level of benefit is the same for any disabled employee regardless of
years of service, the expected cost of those benefits is recognized when
an event occurs that causes a long-term disability. (IAS 19, par. 157)
 OTHER LONG-TERM EMPLOYEE BENEFITS
DISCLOSURE

 Although this Standard does not require specific disclosures about other
long-term employee benefits, other IFRSs may require disclosures.

 For example, IAS 24 requires disclosures about employee benefits for

key management personnel. IAS 1 requires disclosure of employee
benefits expense. (IAS 19, par. 158)
TERMINATION
BENEFITS
 TERMINATION BENEFITS
 This Standard deals with termination benefits separately from other
employee benefits because the event that gives rise to an obligation
is the termination of employment rather than employee service.

 Termination benefits result from either of the following:

a. an entity’s decision to terminate the employment; or

b. an employee’s decision to accept an entity’s offer of benefits in
exchange for termination of employment. (IAS 19, par. 159)
 TERMINATION BENEFITS
 Termination benefits do not include:

a. employee benefits resulting from termination of employment at the

request of the employee without an entity’s offer; or
b. as a result of mandatory retirement requirements, because those
benefits are post-employment benefits.

 Some entities provide a lower level of benefit for termination of

employment at the request of the employee (in substance, a
post-employment benefit) than for termination of employment at the
request of the entity.

 The difference between the benefit provided for termination of

employment at the request of the employee and a higher benefit
provided at the request of the entity is a termination benefit. (IAS 19,
par. 160)
 TERMINATION BENEFITS
 The form of the employee benefit does not determine whether it is
provided in exchange for service or in exchange for termination of the
employee’s employment.

 Termination benefits are typically lump sum payments, but sometimes

also include:

(a) enhancement of post-employment benefits, either indirectly

through an employee benefit plan or directly.
(b) salary until the end of a specified notice period if the employee
renders no further service that provides economic benefits to the
entity. (IAS 19, par. 161)
 TERMINATION BENEFITS
 Indicators that an employee benefit is provided in exchange for services
include the following:

(a) the benefit is conditional on future service being provided

(including benefits that increase if further service is provided).
(b) the benefit is provided in accordance with the terms of an
employee benefit plan. (IAS 19, par. 162)
 TERMINATION BENEFITS
 Some termination benefits are provided in accordance with the terms of
an existing employee benefit plan.

 For example, they may be specified by statute, employment contract or

union agreement, or may be implied as a result of the employer’s past
practice of providing similar benefits.

 As another example, if an entity makes an offer of benefits available for

more than a short period, or there is more than a short period between
the offer and the expected date of actual termination, the entity
considers whether it has established a new employee benefit plan and
hence whether the benefits offered under that plan are termination
benefits or post-employment benefits.

 Employee benefits provided in accordance with the terms of an

employee benefit plan are termination benefits if they both result from
an entity’s decision to terminate an employee’s employment and are
not conditional on future service being provided. (IAS 19, par. 163)
 TERMINATION BENEFITS
 Some employee benefits are provided regardless of the reason for the
employee’s departure. The payment of such benefits is certain (subject
to any vesting or minimum service requirements) but the timing of their
payment is uncertain.

 Although such benefits are described in some jurisdictions as

termination indemnities or termination gratuities, they are
post-employment benefits rather than termination benefits, and an
entity accounts for them as post-employment benefits. (IAS 19, par. 164)
 TERMINATION BENEFITS
RECOGNITION

 An entity shall recognize a liability and expense for termination benefits

at the earlier of the following dates:

(a) when the entity can no longer withdraw the offer of those benefits;
and
(b) when the entity recognizes costs for a restructuring that is within
the scope of IAS 37 and involves the payment of termination
benefits. (IAS 19, par. 165)
 TERMINATION BENEFITS
RECOGNITION

 For termination benefits payable as a result of an employee’s decision to

accept an offer of benefits in exchange for the termination of
employment, the time when an entity can no longer withdraw the offer
of termination benefits is the earlier of:

(a) when the employee accepts the offer; and

(b) when a restriction (e.g., a legal, regulatory or contractual
requirement or other restriction) on the entity’s ability to
withdraw the offer takes effect. This would be when the offer is
made, if the restriction existed at the time of the offer. (IAS 19,
par. 166)
 TERMINATION BENEFITS
RECOGNITION

 For termination benefits payable as a result of an entity’s decision to

terminate an employee’s employment, the entity can no longer
withdraw the offer when the entity has communicated to the affected
employees a plan of termination meeting all of the following criteria:

(a) Actions required to complete the plan indicate that it is unlikely

that significant changes to the plan will be made.
(b) The plan identifies the number of employees whose employment
is to be terminated, their job classifications or functions and their
locations (but the plan need not identify each individual
employee) and the expected completion date.
(c) The plan establishes the termination benefits that employees will
receive in sufficient detail that employees can determine the
type and amount of benefits they will receive when their
employment is terminated. (IAS 19, par. 167)
 TERMINATION BENEFITS
RECOGNITION

 When an entity recognizes termination benefits, the entity may also

have to account for a plan amendment or a curtailment of other
employee benefits (see paragraph 103 of IAS 19). (IAS 19, par. 168)
 TERMINATION BENEFITS
MEASUREMENT

 An entity shall measure termination benefits on initial recognition, and

shall measure and recognize subsequent changes, in accordance with
the nature of the employee benefit, provided that if the termination
benefits are an enhancement to post-employment benefits, the entity
shall apply the requirements for post-employment benefits. Otherwise:

(a) if the termination benefits are expected to be settled wholly

before twelve months after the end of the annual reporting period
in which the termination benefit is recognized, the entity shall
apply the requirements for short-term employee benefits.
(b) if the termination benefits are not expected to be settled wholly
before twelve months after the end of the annual reporting
period, the entity shall apply the requirements for other
long-term employee benefits. (IAS 19, par. 169)
 TERMINATION BENEFITS
DISCLOSURE

 Although this Standard does not require specific disclosures about

termination benefits, other IFRSs may require disclosures.

 For example, IAS 24 requires disclosures about employee benefits for

key management personnel.

 IAS 1 requires disclosure of employee benefits expense. (IAS 19, par. 171)
ACTIVITY
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 1
A company plans to close one of its branches in three months’ time. There
are twenty (20) employees in the branch. Because the company wants to
fill in some pending customers orders, the company offers its employees
the following:

a. Each employee who stays and render service until the closure of
the branch will receive on the termination date a cash payment of
P130,000.
b. Employees leaving before closure of the branch will receive
P40,000.

The company expects that five (5) employees will leave before closure.

1. How much is the liability for termination benefits?

2. How much is the short-term employee benefits?
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 2
All of Gold Company’s employees are entitled to two weeks of paid
vacation for each full year in Gold’s employ . Unused vacation time can be
accumulated and carried forward to succeeding years and will be
compensated at the salary in effect when the vacation is taken. Silver
starter her employment with Gold on January 1, 2016. As of December 31,
2022, when the salary of Silver was P12,500 per week, Silver had used 10
weeks of her accumulated vacation time. In December 2022, Silver notified
Gold of the intention to use her accumulated vacation weeks in June 2023.
Gold regularly scheduled salary adjustments equivalent to 10% in July of
each year. Gold properly did not deduct compensation for unused
vacations in Silver’s 2022 income tax return.

How much should Gold report as a liability at December 31, 2022 for Silver’s
accumulated vacation time?
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 3
Apex Company’s employees earn two weeks of paid vacation for each year
of employment. Unused vacation time can be accumulated and carried
forward to succeeding years and will be paid at the salary in effect when
the vacation is taken. As of December 31, 2022, when Paul’s salary was
P6,000 per week. Paul had earned 18 weeks vacation time and had used 12
weeks of accumulated vacation time.

At December 31, 2022, how much should Apex carry as a liability for Paul’s
accumulated vacation time?
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 4
Bad Company pays all employees on a weekly basis. Overtime pay,
however, is paid in the next biweekly period. Bad Company accrues salaries
expenses only at its December 31 year-end. Data relating to salaries earned
on December 31, 2022 are, as follows:

 Last payroll was paid on December 26, 2022 for the 2-week period
ended December 26, 2022.
 Overtime pay earned in the 2-week period ended December 26, 2022
was P10,500.
 Remaining workdays in 2022 were December 29, 30, and 31, on which
days, there was no overtime.
 The recurring bi-weekly salaries total P187,500.

Assuming a five-day workweek, what amount should Bad Company record

as accrued salaries at December 31, 2022?
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 5
Strand, Inc. provides an incentive compensation plan under which its
president receives a bonus equal to 10% of the corporation’s income in
excess of P600,000 before income tax but after deduction of the bonus. If
income before income tax and bonus is P1,920,000 and the tax rate is 25%,
the amount of the bonus would be?
 EMPLOYEE BENEFITS
SAMPLE PROBLEM NO. 6
Governance, Inc. has a bonus plan covering all employees. The total bonus
is equal to 10% of Governance’s preliminary (pre-bonus, pre-tax) income
reduced by the income tax (computed on the preliminary income less the
bonus itself). Governance’s preliminary income for 2022 is P1,000,00 and
the income tax rate is 25%.

1. How much is the bonus for 2022?

2. What amount should Governance, Inc. recognize as a distribution of
profit related to their bonus plan in 2022?
Thanks!
Does anyone have any questions?

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