EMPLOYEE BENEFITS


 PAS 19 EMPLOYEE BENEFITS

Lesson Objectives:
1. Differentiate the four classifications of employee benefits
under PAS 19
2. State the timing of recognition of employee benefits
3. Differentiate between a defined contribution plan and defined
benefit plan
4. 4. Account for defined contribution plan
 DISCUSSION AND APPLICATION

 Employee Benefits are “all forms of consideration given by an entity in exchange for
service rendered by employees or forthe termination of employment (PAS 19.8)
 Employee benefits can be in any form, i.e. cash, goods or services, and may be
provided to either the employees or their dependents.
  Employees include all employees whether regular, part time or casual and regardless
of position in the entity, i.e. rank-and-file, director or other management personnel.
Recognition :
Employee benefits are recognized as expense when employees have rendered service,
except to the extent that the employee benefits from part of the cost of another asset (e.g.,
salaries of factory workers are included in the cost of inventories)
Employee benefits already earned by employees but not yet paid are recognized as
liabilities.
Employee benefits may arise from contractual agreements (e.g., employment contracts),
legislation (e.g. Social Security System “SSS” contributions) or informal practices that
create constructive obligations.
 Four categories of employees
benefits under PAS 19

a. Short-term employee benefits
b. Post-employment benefits
c. Other long-term employee benefits
d. Termination benefits.
 Short term employee benefits

Short term employee benefits are those that are due to
be settled within 12 months after the end of the period
in which the employees have rendered the related
services. Examples include:
 Salaries, wages, and SSS, Philhealth and Pag-ibig
contributions
 Paid vacation leaves and sick leave
 Profit-sharing bonuses
 Non-monetary benefits (e.g., free goods or services
 General accounting requirements

The accounting for short-term employee benefits is relatively
simple, in the sense that actuarial valuations and
discounting are not necessary in measuring the cost. The
benefits are recognized as expense (or as part of the cost of
another asset)after the employee has rendered service and
becomes entitled to payment.
 An accrued liability is recognized if the benefits are
unpaid.
 A prepaid asset is recognized if there is excess payment.
 Short term employee benefits are recognized periodically,
e.g. salaries are usually paid every 15th and 30th of the
month.
 ILLUSTRATION:

ABC Co. pays salaries twice a month and does not pay
salaries in advance. Employees work five days a week and
compensation are computed on these working days. In
December 20x1, ABC Co. paid the second semi-monthly
salaries on December 26 which falls on a Friday. The next
non-working holiday is on New Year’s Day. ABC has 100
employees who earn P1,000 per day. ABC’s cost accountant
identified that 70% of salaries incurred pertain to the
production of goods.
Requirement: How much is the accrued salaries as of
December 31, 20x1?
 ILLUSTRATION:

 Working days after last salary payment (Dec. 29, 30,
31) is 3 days
 Multiply by: Number of employees 100
 Total working days 300
 Multiply by: Average pay per day 1,000
 Accrued Salaries – December 31, 20x1 100,000
• December 27 and 28 shall fall on weekend
SHORT TERM PAID ABSENCES

Short-term paid absences include
vacation, holiday (e.g., regular and
nonworking holidays), maternity,
paternity and sick leaves. Entitlement to
paid absences may be either:
 ACCUMULATING
 NON ACCUMULATING
SHORT TERM PAID ABSENCES

 a. Accumulating – Those that can be carried forward and
used in future periods if not used in the current period.
Accumulating paid absences may be either:
i. Vesting – unused entitlement are paid in cash when
the employee leaves the entity (i.e. monetized)
ii. Non-vesting – unused entitlement are not monetized.

 b. Non-accumulating – Those that expire if not used in the

current period and are not paid in cash when the
employee leaves the entity.
COMPENSATED ABSENCES

 Compensated absences are recognized as follows:
a. Accumulating and vesting - all unused entitlements
are accrued and measured at their expected
settlement amount.
b. Accumulating and non-vesting – unused entitlements
are accrued but taking into account the possibility that
the employees may leave before they use those
entitlements.
c. Non-accumulating – unused entitlements are not
accrued but recognized only when the absences occur.
COMPENSATED ABSENCES

 An employee can be prone to sickness, wanted to have some
travel goals, or if you are a woman and you got pregnant or
if you are a soon to be father you might get a paternity leave,
in all these cases, you will be absent from your work, this is
aside from regular holidays and non-working holidays. In
this case this is being categorized as short term paid
absences. Paid absences means that the company will still
pay you even if you are not working in the office.
  There are companies who are giving benefits following the
minimum standard of the law. Other companies are offering
more than what is the minimum standard.
 ILLUSTRATION
VESTING VS NONVESTING

ABC Co.’s employees are entitled to 12 days paid vacation
leave per year. Employees are require to take a vacation
leave each year, but not necessarily for the full entitlement.
Unused vacation leaves can be carried over indefinitely.
 ABC has 500 employees with an average salary of P1,000
per day. The average salary increase is 5% per year.
During20x1, employees took total vacation leaves of 5,400
days. Based on past experience, 90% of unused vacation
leaves in a year are taken in the immediately following
year.
 CASE 1: VESTING UNUSED VL


ACCRUED LIABILITY COMPUTATION
 CASE 1: NONVESTING UNUSED VL


ACCRUED LIABILITY COMPUTATION
 ANALYSIS

 In case 1 all the unused vacation leave are accrued because they
are accumulating and vesting, meaning even if not taken, the
leaves will eventually be paid in cash when the employee resigns
or retires.

 In Case 2, only the unused vacation leaves expected to be taken are

accrued because they are accumulating and non-vesting. If not
taken, ABC Co. has no obligation to convert the leaves into cash.

 If in case the vacation leaves are non-accumulating, only the leaves

actually taken during the year are recognized. Any unused leave
is forfeited and therefore none is accrued.
 PROFIT SHARING &
BONUS PLANS

Profit sharing and bonuses are additional incentives given
to employees for a variety of reasons - the most obvious is
to motivate the employees to be more productive.
Profit sharing and bonuses are recognized when
(a) ;the entity has a present obligation to pay for them and
(b) the cost can be measured reliably.
Examples of bonus:
a. Bonus before bonus and before tax.
b. Bonus after bonus and before ta
c. Bonus before bonus and after tax
d. Bonus after bonus and after tax
FORMULAS

 ILLUSTRATION

 : Bonus Computation
ABC Co. grants its managerial employees bonus in the
form of profit sharing. Information on operations in
20x1 is shown below:

 Profit before tax P1,000,000

 Bonus rate or percentage 10%
 Income tax rate 30%
SOLUTIONS

 POST EMPLOYMENT BENEFITS

Post-employment benefits are employee benefits (other than
termination benefits and short-term employee benefits) that are
payable after the completion of employment.” (PAS 19.8)

 Examples:
 Retirement benefits (e.g. lump sum payment and pensions)
 Other post-employment benefits (e.g., post-employment life
insurance or medical care).
 Post-employment benefits are provided to employees through
post-employment benefits plans (a.k.a. retirement plans or
pension schemes).
 POST EMPLOYMENT BENEFITS

 A post employment benefit plan can be formal (e.g.,
explicitly stated in employment contract) or informal
(i.e., not documented but implied from the
employer’s past practice or the minimum
requirement of law).
 A post employment benefit plan can also be:
A. Contributory or non-contributory and
B. Funded or Unfunded
 COMPARISON

CONTRIBUTORY NONCONTRIBUTORY
Both the employer and Only the employer contributes
employee contributes to the to the retirement fund
retirement fund(can be unequal)
FUNDED UNFUNDED
The retirement fund is isolated The employer manages any
from employer’s control and is established fund and pays
transferred to a trustee (e.g., directly the retiring employees
investment company) who
undertakes to manage the fund
and pay directly the retiring
employees
-retirement fund is set aside
 POSTEMPLOYMENT BENEFITS

Post-employment benefit plans are classified either:
a. Defined contribution plans: or
b. Defined benefits plans
 Under a defined contribution plan, the employer commits to
make fixed contributions to a fund that will be used to pay for
the retirement benefits of the employees.
 The amount of post-employment benefits to be received by
employees depends on the amount of contributions to the fund
together with the investment income therefrom.
 If the fund balance is less than expected, the employer has no
obligation to make good the deficiency. Therefore, the risk that
retirement benefits may be insufficient rest with the employee.
 POSTEMPLOYMENT BENEFITS

Defined benefits plans
 Under the defined benefit plan, the employers commits to
pay a definite amount of retirement benefits, which can be
determined using a plan formula. The amount of promised
benefits is independent of any fund balance.
 Accordingly, if the fund is insufficient to pay for the promised
benefits, the employer is obligated to make good the
deficiency.
 Therefore, the risk of fund insufficiency rest with the
employers:
 COMPARISON

Defined Contribution plan
 The employer commits to
make fixed contributions to a
fund
 The amount of benefits that
an employee will receive is
dependent on the fund
balance
 The risk that the fund may be
insufficient to meet the
expected benefits rest with
the employee
 Contribution is definite but
benefit is indefinite
Defined benefit plan
 The employer commits to
pay a definite amount of
retirement benefits.
 Such amount is independent
of any fund balance
 The risk that the fund may be
insufficient to pay for the
promised benefits rests with
the employer.
 Contribution is indefinite
but benefit is definite
 COMPARISON

Defined Contribution plan
 Required contribution shall be
recognized as expense
 Required contribution> actual
cost= accrued benefit cost
 Required contr < actual contri=
prepaid asset
Defined benefit plan
1. Plan assets measured at fair
value – FVPA
2. Projected ben obligation –
PBO- actuarial benefit cost
3. FVPA> PBO – PREPAID
4. FVPA < PBO- ACCRUED
 ILLUSTRATION

Case 1
Entity A agrees to provide post employment benefits to its
employees by making monthly contribution equal to 10% of
employees monthly salary to a retirement fund. Upon retirement,
the employee is entitled to any accumulated contributions to a
fund plus any investment income thereon. The employee bears
any investment losses.
Analysis:
This is a defined contribution plan because the benefits to be
received by the employee are dependent on the contributions to
the retirement fund. The employee bears the risk that benefits
will be less than expected.
 ILLUSTRATION

Case 2
Entity A agrees to provide post-employment benefits to its
employees in the form of a lump sum payment of P2M upon
retirement plus monthly pension equal to half of the final monthly
salary level, for two years after the retirement date. After the first
two years, monthly benefits will decrease by 10% every year and
will cease upon the death of the retired employee.
Analysis:
This is a defined benefit plan because the benefits to be received by
the employee are definite amounts and not dependent on
contributions to a retirement fund. The employer bears the risk that
the fund set aside will be deficient of the promised benefits.
 ILLUSTRATION

Case 3
Upon retirement, the employees of Entity A are
entitled to a lump sum payment of equal to half of the
final monthly salary level multiplied by the number
of years of service. The minimum service period is 10
years.

Analysis: This is a defined benefit plan – same reason

as with Case # 2.
 OTHER PLANS

 Hybrid plans are retirement benefit plans that have characteristics of both a defined
contribution plan and a defined benefit plan. For accounting purposes, hybrid plans are
considered as defined benefit plan.
 Multi-employer plans
Under a multiemployer plan, various unrelated employers contribute to common fund that
is managed by a trustee to provide post-employment benefits to the employees of the
participating employers. Contribution and benefit levels are determined without regard to
the identities of the employers. A multi-employer plan is classified as either a defined
contribution plan or a defined benefit plan.
 State Plans
A state plan is one that is established by law and operated by the government. It is
mandatory for all entities within its scope and is not subject to control or influence by the
entity. Examples include: Government Service Insurance System(GSIS), which covers
government employees; and Social Security System (SSS), which covers those in the private
sector. A state plan is accounted for similar to a multiemployer plan, i.e., classified as
either a defined contribution plan or a defined benefit plan.  
 ILLUSTRATION

Social Security System (SSS)
Entity A pays monthly SSS Contributions as part of its employee retirement benefits.
The retirement benefit plan under the SSS law is described below:
Qualification for retirement benefit.
 The member is 60 years old, separated from employment or ceased to be self
employed, and has paid at least 120 monthly contributions prior to retirement
 The member is 65 years old whether employed or not and has paid at least 20
monthly contributions prior to retirement.

Types of retirement benefits.

Lifetime monthly pension – for retiree who has paid at least 120 monthly
contributions prior to retirement, and

Lump-sum amount – for retiree who has not paid the required 120 monthly
contributions.
 MONTHLY PENSION

The monthly pension is based on the contributions paid,
credited years of service and the number of dependent minor
children . The amount of monthly pension is the highest of the
following:
1. The sum of P300 plus 20% of the average monthly summary
credit plus 2% of the average monthly salary credit for each
credited year of service in excess of ten years; or
2. 40% of the average monthly salary credit; or
3. P1,200 provided that the credited years of service (CYS) is
at least 10 or more but les than 200 or P2,000, if the CYS is20
or more. The monthly pension is paid for not less than 60
months.
 MONTHLY PENSION

 A retiree has the option to receive in advance, upon date of
eligibility, the first 18 monthly pension in lump sum
discounted at a preferential rate of interest to be determined by
the SSS. The member will receive the monthly pension on the
19th month and month thereafter.
 IF the member retires after age of 60, the monthly pension shall
be the higher of the following.
 The monthly pension computed at the earliest time the
member could have retired, had been separated from self-
employment or ceased to be self-employed plus all the
adjustments thereto;
 The monthly pension computed at the time when the
member actually retires.
 LUMP SUM PENSION

The lump sum benefit is
equal to the total
contributions paid by the
member and by the employer
including interest.
 ILLUSTRATION

Death of retiree:
Upon the death of the retiree, the primary beneficiaries are entitled to
100% of the monthly pension, and the dependents to the
“dependents” pension. If the retiree dies within 60 months from the
commencement of the monthly; pension and has no primary
beneficiaries, the secondary beneficiaries are entitled to a lump sum
benefit equivalent to the total monthly pensions corresponding to the
5-year guaranteed period excluding the “dependents” pension.

Requirement: Identify whether the retirement benefit plan described

above is defined contribution plan or defined benefit plan.
 ILLUSTRATION

ANALYSIS:
The retirement plan is a state plan – it is
established by law and operated by the
government.
It is defined contribution plan – Entity A is
liable to the employees only for its share in the
monthly SSS contributions.
 ILLUSTRATION

R.A. 7641 Retirement Pay Law, Entity A does not have a post-employment benefit for its
employees. Accordingly, Entity A is subject to the minimum requirements of the law.
Republic Act No. 7641 provides the following:
“ In the absence of a retirement plan (or similar) that provides for the employee’s
retirement benefits in the establishment, an employee shall be entitled to an employee
retirement benefit upon reaching the compulsory retirement age. The age sixty (60) years
or more, but not beyond sixty-five (65) years is the considered compulsory retirement age.
If the employee has served the least of five (5) years in the said establishment, he/she may
retire and enjoy the benefits equivalent of at least once-half (1/2 month salary for his/her
every year of service. A fraction of at least six (6 months) is considered as one whole year.
Unless acknowledged by both parties otherwise, one-half (1/2) a month salary’ shall
represent the fifteen (15)working days in addition to the one-twelfth (1/12) for the
mandated 13th month pay. This also includes the cash equivalent of not more than five (5)
days of paid leaves.

Requirement: Identify whether the retirement benefit plan described above is a defined
contribution plan or definedbenefit plan.
 ILLUSTRATION

Analysis:
• The retirement plan is not a state plan –
although it is promulgated by law, it is not
operated by the government
• If is a defined benefit plan – Entity A is liable
to pay retiring employees the minimum
amount computed in accordance with the
provisions of the law.
 INSURED BENEFITS

An employer may pay insurance premiums to
fund a post-employment benefit plan. Such
plan is classified as either defined contribution
plan or defined benefit plan.
It is a defined benefit plan if the employer
retains the obligation to either pay directly the
benefits to the employee or make good any
deficiency if the insurer fails to pay in full the
benefits.
 DEFINED CONTRIBUTION PLAN


The accounting for defined contribution plans is
straightforward. Since the employer’s obligation is limited to
the amount that it has agreed to contribute, it simply
recognizes the contribution as expense (unless it forms part o
the cost of another asset) and a liability (if unpaid) when
employees have rendered service during a period. If the
amount contributed exceeds the fixed amount of contribution,
the excess is treated as prepaid asset.

The amount of contribution is measured at an undiscounted

amount if it is due within 12 months; if due beyond
12months, it is discounted. Actuarial valuations are not
necessary; therefore, there are no actuarial gains or losses.
 ILLUSTRATION

Under Entity A’s defined contribution plan, it agrees to make fixed
annual contributions of P200,000 to a retirement fund for the benefit
of its employees.

At each year-end, Entity A recognizes a fixed retirement benefit cost

of P200,000, regardless of whether that amount has actually been
contributed and regardless of whether an employee has actually
retired during the period.

If the contribution is not yet made, Entity A recognizes the

retirement benefit cost as a liability (e.g. Accrued payable)measured
at an undiscounted amount (i.e. P200,000) if it is due within 12
months from year end.
 ILLUSTRATION

IF the actual contribution during the period exceeds the fixed
amount (for example, Entity A contributed P230,000) the excess (of
30,000) is accounted for as prepaid asset.

The fact that an employee has actually retired and was paid his/he
retirement benefits during the period does not affect the accounting
above. For example, assume that an employee has retired during the
period and was paid 1M for her retirement benefits. The amount of
retirement benefit cost that Entity A recognizes for the period is still
P200,000, I,e.,the agreed amount of contribution.
If the plan is funded, the trustee is the one who will pay the retiring
employee and not the Entity A.
 SCENARIOS

Scenario 1: Entity A’s retirement benefits plan is
funded. Entity A contributes P200,000 to the fund held
by a trustee.

Scenario 2: Because of poor results of operations, Entity

A was only able to contribute P80,000 to the fund
 SCENARIOS

Scenario 3: Because of profitable operations, Entity A
decided to contribute P230,000 during the period.

Notice that the retirement benefits expense is fixed at

P200,000 – the agreed contribution. Any deficiency in
the contribution is recognized as accrued liability and
any excess is recognized as prepaid asset.
 SCENARIOS

Scenario 4: An employee retired and was eligible to
P30,000 retirement benefits based on the operating
efficiency and investment earnings of the fund. .

No entry is made because the fund is held by the

trustee. The trustee assumes the obligation of paying a
retiring employee. The employer’s obligation is
discharged by its contributions to the fund.
 Variation 1: Retirement plan is
unfunded but with separate fund

Entity A’s retirement plan is unfunded (i.e. not held by
a trustee). However, Entity A has established a separate
fund for the retirement benefit of its employees.

Scenario 1: Entity A accrues the retirement benefits

expense for the year and segregates P80,000 to the
retirement fund maintained internally.
 Variation 1: Retirement plan is
unfunded but with separate fund

Scenario 2: An employee retired and was paid P30,000
retirement benefits based on the operating efficiency and
investment earnings of the fund.

Since the fund is not transferred to a trustee (i.e.

unfunded), Entity A retains the obligation of paying
directly the retiring employees.
 Variation 2: Retirement plan is
unfunded with no separate fund

Entity A’s retirement plan is unfunded and no separate
fund is established for the retirement benefits of the
employees.

Scenario 1: Entity A accrues the retirement benefits

expense for the year.
 Variation 2: Retirement plan is
unfunded with no separate fund

Scenario 2: An employee retired and was paid P30,000
retirement benefits.

In practice, many entities do not have a retirement fund

set aside for their employees. Others do not have a
retirement plan.
The absence of a retirement plan, entities are subject
to the minimum requirement of the law.
 ILLUSTRATION
DEFINED CONTRIBUTION PLAN


ENTRY:
EMPLOYEE BEN EXPENSE 150,000
PREPAID BEN EXPENSE 50,000
CASH 200,000
 ILLUSTRATION
DEFINED CONTRIBUTION PLAN

 ILLUSTRATION
DEFINED CONTRIBUTION PLAN
ENTRIES (2021)
EMP. BENEFIT EXPENSE
 2,000,000
ACCRUED BEN EXP. 2,000,0000
2022
EMP. BENEFIT EXPENSE 2,000,000
ACCRUED BEN EXP. 2,000,0000
PREPAID BENEFIT 700,000
CASH 4,700,000
2023
EMP. BENEFIT EXPENSE 2,000,000
CASH 4,700,000
PREPAID BENEFIT 700,000
ACCRUED BEN EXP 100,000
 ENRICHMENT ACTIVITY

1. Adarna 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 as
taken. As of December 31, 2020, when Ibon salary was ₱9,600
per week. Ibon had earned 18 week vacation time and had
used 12 weeks of accumulated vacation time. At December
31, 2020, how much should Adarna carry as liability for
Ibon’s accumulated vacation time?
___________________________________
Answer: P 57,600
 ENRICHMENT ACTIVITY

2. Mars, Inc. distributed annual bonuses to its sales
manager and two sales agents. The company reported
₱2,400,000profit for 2020 before bonuses and income
taxes. Income taxes of Mars, Inc. average 30%.How
much is the total amount of bonus if bonus of each is
computed at 15% of profit after taxes and bonuses?
___________________________________
Answer: P 574,904
 Employee Benefits (Part 2)

Related standards:
 PAS 19 Employee Benefits
 PAS 26 Accounting and Reporting by Retirement Benefit
Plans
Learning Competencies
 State the accounting procedures for defined benefit
plans.
 Compute for the net defined benefit liability (asset).
 State the components of the defined benefit cost.
 Describe the accounting for other long-term employee
benefits and termination benefits.
Accounting for Defined benefit plan

 Accounting for defined benefit plans is
complex because actuarial assumptions are
required to measure the obligation and the
expense and there is a possibility of
actuarial gains and losses.

 Obligations are measured on a discounted

basis.
 Accounting procedures for defined
benefit plans

Step #1: Determine the deficit or surplus
(Deficit) Surplus = FVPA – PV of DBO
Step #2: Determine the Net defined benefit liability (asset)
 If there is a deficit, the deficit is the Net defined benefit
liability.
 If there is a surplus, the Net defined benefit asset is
the lower of the surplus and the asset ceiling.
The asset ceiling is the present value of any economic
benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
 Accounting procedures for defined
benefit plans

Step #3: Determine the defined benefit cost
 NET INTEREST

INTEREST EXPENSE= PBO, beginning X Discount R
INTEREST INCOME= FVPA, beginning X Discount R
*Old standard: Interest income= expected return using rate
of return
 REMEASUREMENTS

Actuarial gain if DECREASE IN PBO
DEDUCTED IN PBO ENDING
Actuarial loss if INCREASE IN PBO
ADDED IN PBO ENDING
G/L on returns Interest Income vs. Actual Return
Interest income> Actual Loss on return ( deduct in FVPA)
Interest income < Actual Gain on return (add in FVPA)
 Definition of terms

1. Current service cost - is the increase in the present value of
a defined benefit obligation resulting from employee service in the
current period.

2. Past service cost - is the change in the present value of the

defined benefit obligation resulting from a plan amendment or
curtailment.

3. Gain or loss on settlement – the difference between the

present value of the defined benefit obligation and the settlement
price. SP> PBO –loss on settlement; SP<PBO- gain on settlement
 Definition of terms

4. Interest cost on the defined benefit obligation – is the
increase during a period in the present value of a defined benefit
obligation which arises because the benefits are one period closer
to settlement.

5. Actuarial gains and losses –are changes in the present

value of the defined benefit obligation resulting from
experience adjustments and the effects of changes in
actuarial assumptions.
 Actuarial assumptions

Actuarial assumptions are an entity’s best estimates of the
variables that will determine the ultimate cost of providing post
employment benefits.

1. Demographic assumptions about the future characteristics of

employees who are eligible for benefits. Demographic assumptions
deal with matters such as:
a. mortality, both during and after employment
b. rates of employee turnover, disability and early retirement
c. the proportion of plan members with dependents who will be
eligible for benefits
d. claim rates under medical plans
 Actuarial assumptions

2. Financial assumptions, dealing with items
such as:
a. the discount rate
b. future salary and benefit levels
c. future medical costs, if any, including cost of
administering claims and
payments
d. the expected rate of return on plan assets
 REMEASUREMENTS

Change in the effect of asset ceiling, net of interest
ASSET CEILING- MAXIMUM AMOUNT OF ASSET
TO BE RECOGNIZED.
 ASSET CEILING
 1/1/2020 12/31/20
FVPA 10 million 12 million
PBO 8 million 8.5 million
PREPAID 2 MILLION 3.5 MILLION
Asset ceiling 1 MILLION 2 MILLION
EFFECT OF ASSET CEILING 1M 1.5 M
INCREASE: 1.5 M less 1M 500,000
CHANGE IN EFFECT OF ASSET CEILING 500,000

INTEREST EXPENSE (Eff of asset ceiling 1,000,000* 10%

beginning x DR
INCREASE IN EFFECT OF ASSET 450,000
CEILING NET OF TAX- LOSS
 Actuarial assumption – Discount rate

•The rate used to discount post-employment benefit
obligations shall be determined by reference to market yields
at the end of the reporting period on high quality corporate
bonds.

•In countries where there is no deep market in such bonds,

the market yields at the end of the reporting period on
government bonds shall be used.
Present value of defined benefit obligation


Fair value of plan assets

 FVPA DBO EBE REM- gain

BEG. 7,000,000 7,500,000

CSC 1,400,000 1,400,000
Interest exp 750,000 750,000
Interest Inc 700,000 (700,000)
Gain on Actual 140,000 140,000 140,000
Contribution 1.2 M
Benefits paid (1.5 M) (1.5 M)
Decrease in PBO (200,000) 200,000
(actuarial gain)
Settled PBO- PV (500,000)
Price of PBO- Cash (400,000)
Gain on Settlement (100,000)
Balance end 7,140,000 7,450,000 1,350,000 340,000
ANSWERS
1 1,350,000
2 340,000 GAIN
3 1,010,000
4 7,140,000
5 7,450,000
6 310,000 ACCRUED
ILLUSTRATION NO.2
 FVPA PBO EBE REM

BEG. 9.2 M 10 M
CSC 1.2 M 1.2 M
Interest expense 900,000 900,000
Interest Income 828,000 (828,000)
Loss on Actual Ret (578,000) (578,000)
Contribution 1,050,000
Benefits paid (1.1 M) (1.1 M)
Balance end 9.4 million 11 million 1,272,000 (578,000
1.6 million accrued 1.85 million loss

1. 1,272,000
2. 578,000 loss
3. 1.6 million accrued
ILLUSTRATION NO.3
 FVPA PBO EBE REM

BEG. 2.1 million 2.2 million

CSC 30,000 30,000
Interest expense 110,000 110,000
Interest Income (105,000)
Past service cost 115,000 115,000
Actual return 310,000 squeezed
Gain on Return 205,000
Contribution 21,000
Benefits paid (31,000) (31,000) 150,000
Actuarial loss 76,000 squeezed (76,000)
Balance end 2.4 million 2.5 million 150,000 129,000
100,000 accrued

1. 150,000 4. 129,000 gain

2. 310,000 5. 100,000 accrued
3. 76,000
ILLUSTRATION NO.4
 FVPA DBO EBE REM

BEG. 2.6M 2M
CSC 100,000 100,000
Interest expense 200,000 200,000
Interest Income (260,000)
Actual return 200,000
Loss on actual ret 60,000 (60,000)
Contribution 350,000
Benefits paid (150,000) (150,000)
Effect of asset ceiling 40,000 (160,000)
Net of 40K interest
Actuarial gain (50,000) 50,000
Balance end 3M 2.1 M 140,000 (170,000)
1. 200,000 4. (170,000)
2. 50,000
3. 140,000
 PLAN ASSETS

Plan assets comprise:
1.Assets held by a long-term employee benefit fund – are
assets (other than non-transferable financial instruments issued by
the reporting entity) that are legally separate from the employer
and exist solely to pay employee benefits and are not available to
the employer’s own creditors even in case of bankruptcy.

2.Qualifying insurance policy – the proceeds of the policy can

only be used to pay employee benefits and are not available to the
employer’s own creditors even in case of bankruptcy.
 Other long-term employee benefits

Other long-term employee benefits are employee
benefits (other than post-employment benefits and
termination benefits) that are due to be settled beyond
12 months after the end of the period in which the
employees render the related service.
Other long-term employee benefits are accounted for
using the procedures applicable for a defined benefit
plan. However, all of the components of the net benefit
cost are recognized in profit or loss.
 Termination benefits

Termination benefits are employee benefits provided
in exchange for the termination of an employee’s
employment as a result of either:
 an entity’s decision to terminate an employee’s
employment before the normal retirement date; or

 an employee’s decision to accept an entity’s offer of

benefits in exchange for the termination of
employment.
 Measurement

Termination benefits are initially and subsequently recognized in
accordance with the nature of the employee benefit.

a. If the termination benefits are payable within 12 months, the entity shall
account for the termination benefits similarly with short-term employee
benefits.

b. If the termination benefits are payable beyond 12 months, the

entity shall account for the termination benefits similarly with
other long-term benefits.

c. If the termination benefits are, in substance, enhancement to postemployment

benefits, the entity shall account for the benefits as post-employment benefits.