Employee Benefits Flashcards
what accounting standard deals with employee benefits
IAS 19 Employee Benefits
what are the four types of employee benefits
short term employee benefits
post employment benefits e.g. pensions
other long term employee benefits
termination benefits
what are short term employee benefits
benefits that will be paid no more than 12 months after the year end of the year in which the employee rendered the related service
what are examples of short term employee benefits
wages, salaries, employer’s social security contributions
holiday pay and sick pay
bonuses payable
non monetary benefits (Benefits in kind) e.g. health insurance, company car
how are short term employee benefits recognised
EXPENSE (DR) wages/salaries expense
CR Bank with paid amount
CR Accruals with unpaid amount
what is the exception for the recognition of short term employee benefits
if another standard required costs to be capitalised e.g. IAS 16 employee costs relating to building a proprty
what are accumulating paid absences
can be carried forward to future periods if unused
what are non accumulating paid absences
cannot be carried forwards, you use it or you lose it
how should profit sharing and bonus payments be recognised
DR wages/salaries
CR accrual
so long as:
- there is a present obligation to make the payment as a result of past events
- a reliable estimate of the obligation can be made
- the payment is due within 12 months
what are the two types of pensions
defined contribution
defined benefit
what is a defined contribution pension plan
The employer liability is limited to the agreed contributions amount
if the fund has insufficient asserts, the employer does not need to fill the gap
the benefit is not fixed from the employee perspective
for this reason, employers prefer defined contribution
what is a defined benefit contribution plan
the employer is obliged to make sufficient contributions to the pension fund to ensure the agreed level of employee benefits can be paid
if there is insufficient funds, the employer must pay to fill this gap
the benefit is fixed from the employee perspective
for this reason, employee prefer defined benefit
how are defined contribution benefits recognised
DR wages/salary expense
CR accrual of any part not paid at end of period
or DR excess as prepaid expense
how should defined benefit schemes be recognised in the accounts
DR expense contributed annually
CR pension liability
what are the two known unknowns of defined benefit plans
- actuarial risk = employees will live for longer than expected which increases costs by an unknown amount (actuaries work out an estimate of this amount)
- Investment risk = employer may need to step up to meet required benefits if amount is insufficient
