Employee Benefits Flashcards
What are the 2 types of pension scheme?
Defined contribution & defined benefit
What is a defined contribution pension scheme?
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
What is a defined benefit scheme?
A pension scheme that is not a defined contribution scheme
How is a defined contribution scheme recognised?
Expense in P&L
How are plan assets measured?
At their fair value at the end of the reporting period
How are plan liabilities measured?
On an actuarial basis and are discounted to present value at the end of the reporting period
How is a defined benefit pension reported?
Entity offsets the obligation and the plan assets and reports as either a net liability (deficit) or net asset (surplus) at each reporting date
What is a plan obligation?
The obligation to pay its employees a promised level of pension benefit upon retirement. (Liability)
What is a plan asset?
Where the entity has been paying cash into the plan in order to meet the obligation
How do you know whether to report a net defined pension liability or asset?
Obligation > assets = deficit, liability reported
Obligation < assets = surplus, asset reported
Pro forma
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)
Double entry and calculation for Net Interest Component
DR P&L
CR Plan Obligation
Calc: Net deficit/(surplus) * discount rate at start of reporting period
Double entry for Service Cost Component
DR P&L
CR Plan Obligation
Include past service cost
Double entry for Contributions Paid
Dr Plan Assets
Cr Cash
no impact on p&l
Double entry for Benefits Paid
Dr Plan Obligation
Cr Plan Assets
no impact on p&l
What is the Service Cost Component?
change in deficit/surplus relating to;
-employee service in current period
-plan amendments
-settlements
-curtailments
If defined benefit plan is in surplus, IAS19 states the asset must be reporting at the lower of; (Asset ceiling)
-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
What affect does the asset ceiling have on the pro forma?
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
What are short term benefits? And how are they accounted for?
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
What are other long term benefits? And how are they accounted for?
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
What are termination benefits?
Benefits payable as a result of an employment being terminated either by employer or employee accepting voluntary redundancy
How are termination benefits recognised?
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
How are termination benefits measured?
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)
