Employee Benefits

Question 1

What are employee benefits?

Answer 1

Any consideration provided by an entity to an employee in exchange for services rendered, besides IFRS 2 payments

Question 2

What legislation deals with the financial accounting for Employee benefits?

Answer 2

IAS 19

Question 3

What needs to be considered when accounting for Employee benefits?

Answer 3

• what type of benefit the Employee is receiving
• When the benefit should be recognized
• How to measure it
• disclosure

Question 4

How does one Measure an employee Benefit at year end?

Answer 4

• remember to only performs entires for amounts that are expected!
• work out the amount for the entry
• short term
  > Wages and Salaries
  > non-monetary (housing, medical, car) - expense cost incurred in period services rendered
  > paid leave
  ~ The amount (salary per year X (leave days at the end of the year /total working days + paid leave days))
  > profit sharing and bonus
• post employment benefits
  > defined benefit plan
  > defined contribution plan
• Termination benefits
• Basic Journal Entry
  DR Expense (eg staff costs)) OR DR asset (like a prepaid expense almost, it gets capitalized)
  CR liability of paying for the services rendered OR CR Bank if it gets paid on the spot
• Apply the relevant effects from the type

Question 5

What do the following terms imply?
- Paid leave
- Accumulating paid leave
- Non-accumulating leave
- vesting Accumulating leave
- non-vesting accumulating leave
- defined benefit Plan
- defined Contribution Plan

Answer 5

• Paid leave - leave that am employee can take
• Accumulating paid leave - the leave is carried forward if not used within the current period
• Non-accumulating paid leave - the leave is forfeited if not used within the current period (normally a year)
• vesting Accumulating leave - the right to the leave does not retract after employee leaves but rather the employee will be paid out the value of the leave if he leaves
• non-vesting accumulating leave - the right does disappear if the employee leaves employment
• defined benefit Plan - the risk of the fund not being enough funds is born by the employer and will need to pay more money if there are insufficient funds
• defined Contribution Plan - the risk is born by the employee here and if the funds are insufficient in the end, the business will not be obligated to pay over any more money

Question 6

When and why do we raise an expense for leave pay?

Answer 6

When - We raise the expense when they perform the work that earns them the paid leave

Why - BECAUSE WE NOW OWE THEM PAID LEAVE, and they will either not use it and we will need to pay them out, or try won’t use it and we don’t need to pay them or they will use it and then the liability falls away anyways

Question 7

When should an employee benefit be recognized?

Answer 7

• When the expense has been incurred or paid
• However for paid leave, the expense is only incurred when the employee has rendered the service completely to us because until then, we don’t owe them any paid leave according to MOST contracts
• However When it comes to Profit sharing and bonus plans for employee benefits then the following will also need to be met
• legal or constructive obligation exists
• A reliable estimate can be made, which will need the following
  > the existence of a formula
  > Amounts determined before year end
  > Past practice gives evidence of amount
• However with defined contribute plan we only account for the contribution as they are incurred, which is only when the employee has rendered a service to us and finished that
• However with a termination benefit it must be recognized as soon as the employer cannot undo his decision to retrench the employee or he is recognizing restructuring costs

Question 8

What are the Recognition requirements for Employee benefits?

Answer 8

The Employee needs to render their services to the entity and then we can recognized an employee benefit because WE OWE IT TO THEM

Question 9

What type of employee benefits are there?

Answer 9

• short term
  > Wages and Salaries
  > non-monetary (housing, medical, car) - expense cost incurred in period services rendered
  > paid leave
  ~ non-accumulating
  ~ Accumulating
  / vesting
  / non-vesting
  > profit sharing and bonus
• post employment benefits
  > defined benefit plan
  ~ entity pays fixed contributions into a separate fund
  ~ entity has no further legal obligation to contribute
  ~ employees are the ones exposed to the risks
  > defined contribution plan
  ~ company is the one exposed to the risk
• Termination benefits