Employee Benefits

Question 1

What are the 2 types of pension scheme?

Answer 1

Defined contribution & defined benefit

Question 2

What is a defined contribution pension scheme?

Answer 2

An entity pays fixed contributions (to a 3rd party) and has no legal/constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits

Question 3

What is a defined benefit scheme?

Answer 3

A pension scheme that is not a defined contribution scheme

Question 4

How is a defined contribution scheme recognised?

Answer 4

Expense in P&L

Question 5

How are plan assets measured?

Answer 5

At their fair value at the end of the reporting period

Question 6

How are plan liabilities measured?

Answer 6

On an actuarial basis and are discounted to present value at the end of the reporting period

Question 7

How is a defined benefit pension reported?

Answer 7

Entity offsets the obligation and the plan assets and reports as either a net liability (deficit) or net asset (surplus) at each reporting date

Question 8

What is a plan obligation?

Answer 8

The obligation to pay its employees a promised level of pension benefit upon retirement. (Liability)

Question 9

What is a plan asset?

Answer 9

Where the entity has been paying cash into the plan in order to meet the obligation

Question 10

How do you know whether to report a net defined pension liability or asset?

Answer 10

Obligation > assets = deficit, liability reported
Obligation < assets = surplus, asset reported

Question 11

Pro forma

Answer 11

Net deficit/(surplus) x/(x)
Net Interest Component x/(x)
Service Cost Component x
Contributions Paid (x)
Benefits Paid -
Remeasurement Component (bal fig) OCI x/(x)
Net deficit/(surplus) x/(x)

Question 12

Double entry and calculation for Net Interest Component

Answer 12

DR P&L
CR Plan Obligation

Calc: Net deficit/(surplus) * discount rate at start of reporting period

Question 13

Double entry for Service Cost Component

Answer 13

DR P&L
CR Plan Obligation

Include past service cost

Question 14

Double entry for Contributions Paid

Answer 14

Dr Plan Assets
Cr Cash

no impact on p&l

Question 15

Double entry for Benefits Paid

Answer 15

Dr Plan Obligation
Cr Plan Assets

no impact on p&l

Question 16

What is the Service Cost Component?

Answer 16

change in deficit/surplus relating to;
-employee service in current period
-plan amendments
-settlements
-curtailments

Question 17

If defined benefit plan is in surplus, IAS19 states the asset must be reporting at the lower of; (Asset ceiling)

Answer 17

-amount calculated as normal
-the present value of the economic benefits available to the entity in the form of refunds or reduced pension contributions
i.e. ensures it meets the definition of an asset

Question 18

What affect does the asset ceiling have on the pro forma?

Answer 18

The b/f or c/f figures are the asset ceiling (i.e. beginning/end figures). Which is also used to calculate the NI component

Question 19

What are short term benefits? And how are they accounted for?

Answer 19

Settled within 12 months of the end of the reporting period when the employee provided the relevant service such as wages and salaries.

Costs are expenses as incurred in accordance with accruals concept

Question 20

What are other long term benefits? And how are they accounted for?

Answer 20

Items not expected to be settled within 12 months of the end of the reporting period such as deferred remuneration. (Does not include pension schemes)
Recorded in the same way as a defined benefit scheme however remeasurement component is recorded in P&L

Question 21

What are termination benefits?

Answer 21

Benefits payable as a result of an employment being terminated either by employer or employee accepting voluntary redundancy

Question 22

How are termination benefits recognised?

Answer 22

Recognises liability and expense at the earlier of the date when;
-the entity can no longer withdraw the termination benefits offer
-the entity recognises restructuring costs in accordance with IAS37 Provisions, Contingent Liabilities and Contingent Assets

Question 23

How are termination benefits measured?

Answer 23

Measured on initial recognition
Subsequent measurement depends on the nature of the benefit (whether it is short term, pension enhancement or another type of long term benefit)