Employee Benefits

Question 1

Employee benefits (IAS 19)

Answer 1

Short term benefits 
Long term benefits 
-post employment benefits 
-termination benefits 
-other long term benefits

Question 2

General principle

Answer 2

Recognise the cost of employee service in the period of the service

Question 3

Accounting for short-term benefits

Answer 3

Wages and salaries
Short term compensated absences
-accumulating
-non-accumulating

Bonuses
Accounting:
Dr expense, Cr liability/cash

Question 4

Pension benefits - defined contribution plans

Answer 4

Specified contribution
Risk falls upon employees
No liability/asset

Question 5

Defined benefit plans- post-employment benefits

Answer 5

Specified benefit
Risk falls upon employer
Recognise liability/asset

Question 6

Accounting for defined contribution plans

Answer 6

Expense recognised in the period when employee render service

Question 7

Accounting for defined benefit plans

Answer 7

Measure defined benefit obligation
Measure plan assets
-surplus/deficit

Question 8

Measurement assumptions

Answer 8

Obligation

• How long will employees work?
• How long will they live?
• What salary will they earn?
• What interest rate?

Plan assets
Fair value?

Question 9

Recognition

Answer 9

Service cost and net interest in P/L
Net re-measurements in OCI
Pension asset/liability in balance sheet

Question 10

Why are the amounts so volatile

Answer 10

• interest rates
  Fluctuation
  Effect of discounting over +20 years

-FV of Plan assets
Market volatility

Question 11

Accounting for termination benefits

Answer 11

In return for terminating contract not service
Recognise expense and liability
- payable within 12 months —–> short term benefits
- payable after 12 months ——-> long-term benefits

Question 12

Accounting for other long term benefits

Answer 12

Examples:
Long term pain absences, long term disability benefits, long term bonuses
- similar to defined benefit plans but re-measurements recognised in P/L

Question 13

Share-based benefits

Answer 13

• Increasing use of share based compensation since 1990s
• options, shares
• cash bonuses based on share prices

Accounting highly controversial
SFAS 123: disclosure or exposure
IFRS 2: expense
SFAS 123R: expense

Question 14

Arguments against recognition of an expense

Answer 14

• transactions between shareholders and employees
• no additional services required
• no cost to entity
• does not meet definition of expense

Question 15

Arguments for recognition of an expense

Answer 15

Asset of employee service is immediately consumed:
DR asset, Cr equity
Dr expense, Cr asset

Question 16

Equity settled- type of share based payments

Answer 16

E.g shares and share options
Dr expanse Cr equity

• fair value of the equity instruments granted at grant date
• fair value not intrinsic value e.g market prices or valuation techniques
  And intrinsic value as last choice
• don’t re-measure
• vesting conditions
  Expense over vesting period
  Revise estimates

Question 17

Cash settled- example of share gassed payments

Answer 17

Share appreciation rights
Dr expense, Cr liability
- fair value
- re-measure at each reporting date and settlement date