Employee Benefits

Question 1

Employee benefits IAS standard

Answer 1

IAS 19

Covers 4 distinct types: Short term, Post-employment, Other long-term and Termination benefits

Question 2

Short term benefits include

Answer 2

Include: Salaries/wages, paid annual leave/sick leave, profit sharing and bonuses, non-monetary benefits (healthcare)

Question 3

Short term paid absences (accumulating and non-accumulating)

Answer 3

Accumulating paid absences are if you can carry forward leave to the next year, the expected costs of unused entitlement is recognised as an accrual at year end.

Non-accumulating absences are only recognised as an expense when the absence occurs.

Question 4

Profit sharing and bonus plans

Answer 4

Recognise the costs when:
A) The entity has a present legal or constructive (valid expectation) to make such payment as a result of past events. AND
B) A reliable estimate of the obligation can be made.

Present obligation exists only when the entity has no realistic alternative.

Question 5

Pensions

Definition

Answer 5

Pensions

Defined contribution plans - Defined benefit plans

Defined contribution plans = % of annual salary, the value of the pension depends on the value of the fund.

Dr expense
Cr cash/accruals

Defined benefit plan = Final salary x (years worked/per terms of plan)

Question 6

Pensions

Defined benefit plan
BS
P&L

Answer 6

Balance sheet you see

Pension assets (FV) - X
Pension obligations/liabilities (At PV) - (X)
Net asset/liability - X/(X)

P&L
Service cost (increase in liability due to employee service)
Interest expense (finance cost) (increase in liability as discount unwinds for present value)
Assets also grow due to investment performance  = return on investment (RoI)

High yield corporate bonds return % (often government bonds) used to calculate the RoI and finance cost often known as net interest costs

Question 7

Pensions

OCI

Answer 7

Remeasurement gain/loss = difference in our workings to actuary values given for asset and liability

Ours:
B/F + Return on investment + contributions - paid out = expected asset

B/F + Interest + Service cost - paid out = expected liability

Question 8

Pensions

Curtailment

Answer 8

When significant amount of employees leave/fired

Gain/loss to P&L
Dr liability
Cr P&L

Question 9

Pension

Asset ceiling

Answer 9

Restrict the amount of gain so it does not appear to be an asset for the investors

Ceiling is the PV of any future cash savings from not contributing to the scheme