IAS 19 - Employee Benefits

IAS 19 - Employee Benefits

SCOPE - Applied to employee benefits Provided

Under legislative By those informal

Under formal
requirements or practices that
plans or other
through industry gives rise to
formal
arrangements constructive
agreements
obligation -
between entity
example 10
and individual
employees ko
employees, group
diya baaki roney
of employees and
lag gaye abh is se
their
representatives
relation kharab
hoga
C A
, A
ar
Employee benefits include

u m
Short term

h K Long term
benefits
benefits

expected to be
ke s
settled with in 12
months after the
M u Post
employement
benefits
Termination
benefits

period
s h
end of reporting

ka
Contribution plan Benefit plan
1. Payment to be
A
1. Salary
2. Bonuses
3. Leave
1. Provident fund 1. Gratuity fund
2. Pension fund
made to emploiyee
against his
encashment acceptance of
termination.

Whether provided to employee itself and their dependants ( whether full time or part time employee ).

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

1. Contribution Plan:
Company' policy is to contribute 10% of basic salary employe and employer in to Provident fund.

IAS 19 IAS 26
Company Provident fund

Sal exp 100 Cash 20

Sal pay 100 Member fund 20

Sal pay 100 Investment 5

Cash 90 Cash 5
Pay to PF 10 (Investments made out of funds)
(Employee contribution)

Sal exp 10
Investment
Fv gain
C
2
A 2
Pay to PF
(Employer contribution)
10
A
(Return on investment)

,
Pay to PF 20
Fair value gain

m ar
Member fund
2
2
Cash
(Payment to PF)
20
u
For understanding

K
s h
Question 1:

u ke
Zawahir limited have 15 employees on its payroll details of Salaries are:

h
Details of payrol per month: M
Employee name

ka s Grade Basic
Rent Fuel
Allowance allowance
Total
Hudaid
Wasi
Raza
A A
A
A
100,000
120,000
144,000
20,000
24,000
28,800
5,000
6,000
7,200
125,000
150,000
180,000
Muzammil B 80,000 16,000 4,000 100,000
Shahzar B 96,000 19,200 4,800 120,000
Myt B 115,200 23,040 5,760 144,000
Arfeen B 64,000 12,800 3,200 80,000
Laxman A 187,200 37,440 9,360 234,000
Sheikhar A 205,920 41,184 10,296 257,400
Rajan B 76,800 15,360 3,840 96,000
Parmar B 92,160 18,432 4,608 115,200
Vicky B 51,200 10,240 2,560 64,000
Rakesh A 150,000 30,000 7,500 187,500
Parmesh A 165,000 33,000 8,250 206,250
Ateeq A 181,500 36,300 9,075 226,875

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Further information:
1. Company operates defined contribution plan which has following terms:

- For Grade A employees, employee and employer contributes 5% of basic salary per month.
- For Grade B employees, employee and employer contributes 10% of basic salary per month.

2. Contribution of employee and employer related to last month of the year i.e. December 31, 2020 were
deposited upto 60%. 40% still payable.

Required:
Fill the following journal entry for the month of December 31, 2020:

Date Particulars DR CR
Salary expense
31-Dec-20
Salary payable

C A
Date Particulars
Salary payable
DR CR

, A
31-Dec-20 Cash
Payable to provident fund
m ar
Date Particulars DR
K u CR
31-Dec-20
PF exp / Salary exp

s h
ke
Payable to provident fund

2. Benefit Plan:
M u
h
- Contribution is only of employer
s
ka
- Employer promises that some % of salary will be paid for each year of service given .

Illustration 1:A
Concept 1: (without time value of money) % of present salary

Naseem Limited appointed Mr. Rajper on January 1, 2018.

Terms of employement includes:

1. Basic salary Rs. 100,000 per month.
2. Gratuity scheme entitlement in which he will be paid 10% of basic salary for each year of service given
3. Increment 10% per year.
4. Employement for 5 years

Required:
1. Calculate amount of Gratuity payable as at December 31, 2020.(assuming that employee remain in
employement since 2018 till now)

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Concept 1: (without time value of money) % of present salary

Illustration 2:
Hassan Limited appointed Mr. Alam on January 1, 2018.

Terms of employement includes:

1. Basic salary Rs. 120,000 per month.
2. Gratuity scheme entitlement in which he will be paid 12% of basic salary for each year of service given
3. Increment 12% per year.
4. Employement for 5 years

Required:
1. Calculate amount of Gratuity payable as at December 31, 2020.(assuming that employee remain in
employement since 2018 till now)

Concept 2: (with time value of money) % of final salary

Illustration 3:
C A
Shoaib Limited appointed Mr. Akhter on January 1, 2018.

, A
Terms of employement includes:
1. Basic salary Rs. 100,000 per month.
m ar
3. Increment 5% per year.
K u
2. Gratuity scheme entitlement in which he will be paid 15% of final salary for each year of service given

4. Employement for 4 years

s h
Discount rate 10%

u ke
Required:

h M
1. Calculate amount of Gratuity payable as at December 31, 2020.(assuming that employee remain in

s
employement since 2018 till now)

ka
Illustration 4:
A
First year annual salary is Rs. 500,000
Salary increment per year is 12%
Total service life 7 years
Discount rate 10%

Defined benefit formula:

15% of final salary for each year of service payable at the time of retirement.

Required:
1. Current service cost at the end 3rd year
2. PV of defined benefit obligation at the end of 3rd year

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 5:
First year annual salary is Rs. 800,000
Salary increment per year is 15%
Total service life 10 years
Discount rate 12%

Defined benefit formula:

10% of final salary, for each year of service payable at the time of retirement.

Required:
1. Current service cost at the end 4th year
2. PV of defined benefit obligation at the end of 4th year

Illustration 6:

C A
, A
m ar
K u
s h
u ke
h M
ka s
Required: A
1. Show the figures that would appear on the face of the statement of financial performance as at 31
December Year 3 and Year 4.

2. Construct a journal to explain the movement on the defined benefit net asset (or net liability) during the
year ended 31 December Year 4.

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 7:

C A
, A
mar
K u
s h
uke
h M
ka s
A

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 8:

C A
, A
mar
K u
s h
uke
h M
ka s
A

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 9: (Asset Ceiling):

Company maintains gratuity fund for its employess details of which are as follows:

Particulars 2018
Fair value of Defined benefit obligation 7,500,000
Fair value of net assets 8,200,000
Currect service cost 750,000
Benefit paid 500,000
Contribution made 800,000

Further information:
1. Discount rate is 10%.
2. Fair value of Defined Benefit liability and fair value of plan assets as at 31 december 2017 were
Rs. 6,500,000 and Rs. 6,800,000
3. Present value of economic benefits available in the form of future reductions or refund is RS.
300,000
C A
Requirement:
, A
1. Disclosures required by IAS 19

m
2. Net Defined Benefit Asset and Liability to be reported on Balance Sheet. ar
K u
Minimum funding requirement - IFRIC 14
Illustration 10:

s h
ke
X Limited has a post-employment plan subject to a minimum funding requirement (MFR) as a result of which
it has a statutory obligation to contribute Rs. 200m to the plan as at the reporting date:

M u
The plan rules permit a full refund of any surplus to the entity at the end of the life of the plan.

h
Year-end valuation of the plan is set out below:

s
ka
2018
Rs. In million

A
Market value of plan assets
Present value of plan obligation
1,200
(1,100)

Illustration 11:
X Limited has a post-employment plan subject to a minimum funding requirement (MFR) as a result of which
it has a statutory obligation to contribute Rs. 200m to the plan as at the reporting date:

The amounts in the plan are not available for refund in the future so there a liability in respect of the
minimum funding requirement is required

Year-end valuation of the plan is set out below:

2018
Rs. In million
Market value of plan assets 1,200
Present value of plan obligation (1,100)
100

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 12:
X Limited has a post-employment plan subject to a minimum funding requirement (MFR) as a result of which
it has a statutory obligation to contribute Rs. 200m to the plan as at the reporting date.

The plan rules allow for the refund of 60% of any surplus that arise according to IAS 19.

Year-end valuation of the plan is set out below:

2018
Rs. In million
Market value of plan assets 1,200
Present value of plan obligation (1,100)
100

Illustration 13:

it has a statutory obligation to contribute Rs. 300m to the plan as at the reporting date.
C A
X Limited has a post-employment plan subject to a minimum funding requirement (MFR) as a result of which

The plan rules allow for the refund of 60% of any surplus that arise as per IAS 19.
, A
ar
um
Year-end valuation of the plan is set out below:
2018

Market value of plan assets

h K Rs. In million
1,000
Present value of plan obligation
e s (1,100)

uk
(100)
Illustration 14:

Particulars
h M
Company maintains Pension Plan for its employess details of which are as follows:
2018

k a
Fair value of net assets s
Fair value of Defined benefit obligation 7,900,000
8,500,000

Benefit paid A
Currect service cost

Contribution made
550,000
500,000
700,000

Further information:
1. Discount rate is 12%.
2. Fair value of Defined Benefit liability and fair value of plan assets as at 31 december 2017 were Rs.
5,400,000 and Rs. 6,100,000
3. Plan is subject to minimum funding requirement as a result, it has to contrubute Rs. 1,000,000.

Requirement:
1. Disclosures required by IAS 19 if:
i. Refunds from the fund are 40%
ii. No Refunds
iii. Full Refund

2. Net Defined Benefit Asset and Liability to be reported on Balance Sheet (in each of the above cases).

By Akash Mukesh Kumar, ACA

IAS 19 - Employee Benefits

Illustration 15:
Company maintains Gratuity Plan for its employess details of which are as follows:

Particulars 2018
Fair value of Defined benefit obligation 6,300,000
Fair value of net assets 6,100,000
Currect service cost 435,000
Benefit paid 500,000
Contribution made 500,000
Further information:
1. Discount rate is 14%.
2. Fair value of Defined Benefit liability and fair value of plan assets as at 31 december 2017 were Rs.
6,500,000 and Rs. 6,000,000
3. Plan is subject to minimum funding requirement as a result, it has to contrubute Rs. 800,000.
Requirement:
1. Disclosures required by IAS 19 if:
C A
i. Refunds from the fund are 55%
ii. No Refunds
, A
iii. Full Refund

m ar
u
2. Net Defined Benefit Asset and Liability to be reported on Balance Sheet (in each of the above cases).

K
s h
u ke
h M
ka s
A

By Akash Mukesh Kumar, ACA

IAS 19 – Employee Benefits (Short Term Benefits)

Question 1:

Babu limited has an employee named Ustad.

Ustad is allowed to take 30 paid annual leaves. During the year he has taken 14 leaves.

Salary increment is 10%.

Annual Salary is Rs. 1,000,000.

Year is of 365 days.

Required:

Calculate provision for compensated absences if:

i. Leaves are accumulating and Ustad is entitled to Cash Payment if leaves are not used
(i.e. Vesting). Ustad is expected to use only 50% leaves balance next year.

ii. Leaves are accumulating and Ustad is not entitled to Cash Payment if leaves are not
used (i.e. Non-Vesting). Ustad is expected to use only 50% leaves balance next year
(leaves which are not taken will be lapsed).

iii. Leaves are non-accumulating.

Question 2: (Accumulating – Vesting V/S Non-vesting)

Umrani Limited has one employee. His name is Bilal.

Bilal is paid Rs. 365,000 per year, but this is expected to increase by 10% in 20X2.
- The year is 365 days.
- Bilal is owed 30 days leave per year.
- Bilal took 20 days leave in 20X1. Bilal’s leave is accumulating

Umrani Limited’s financial year-end is 31 December 20X1.

Required: Calculate any leave pay provision at 31 December 20X1 and show all journals
assuming:

A. the leave is accumulating and vesting (i.e. Bilal is entitled to convert his unused leave into
cash): past experience suggests that Bilal will only take 90% of his unused leave balance
before he finally either resigns or retires from Umrani Limited;

B. the leave is accumulating and non-vesting (i.e. Bilal may not convert unused leave into
cash): past experience suggests that Bilal will only take 90% of his unused leave balance
before he finally either resigns or retires from Umrani Limited;

C. the leave is accumulating for a limited period and non-vesting: it accumulates for one year
only after which unused leave will be forfeited: past experience suggests that Bilal will
take 3 days leave in 20X2 from his 20X1 leave entitlement carried forward.

Akash Mukesh Kumar, ACA Page 1