Lec 12 Flashcards
(12 cards)
Ias 19 employee benefits
Employee benefits are all forms of considerations given by a company for the services rendered by employees.
Short term benefits <12 moths
Post employment benefits: retirements benefits, pensions
Termination benefits: pre retirements plans, bonus for contact termination
Other long term benefits: settled after 12 months (eg long service leave, non monetary benefits like cars)
Accounting for short term benefits example 1
A company pays 100000 salaries in the following month and retains 5000 for a medical benefits fund.
Wage expense 105k
Wages and salaries (CL)100k
Medical benefits payable (CL) 5k
Accounting for short term benefits example 2
An employee receives a net salary of 70000 and is entitled to 4 weeks leave and to an additional holiday bonus of 17.5%. Company should monthly recognise proportion of paid leave and bonus:
Wage expense 70k/12 + (70k *.175)/12 = 6853
Cash 5833
Provision for annual leave (70k*.175)/12 = 1021
Who bears the risk of future payments
Defined contribution plan is employee
Defined benefit plan is employer
Defined contribution plans:
Defined contribution plan is post employment benefit plans under which a company pays fixed contributions to a seperate entity (a fund) and will have no legal obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits talking to employee service during current and prior peridos > employer paus fixed amount do fund (employee Kees ownership of money and does what she wants during her working life)
Actuarial and investment risks remain with the emplyee
Actuarial risk: future actual benefits < expected future bent
Investment risks: future value of invested assets is insufficient to meet expected benefits
For defined contribution plan
Employer recognised the plan as an expense against a CL
EG A company has a defined contribution plan payable at the end of the year which equals 10% of employee 1 annual salary (125,000)
Annual contribution =125,000 x .1 = 12500
So
Employee benefits expense 12500
Employee benefits payable (+CL) 12500
Defined benefits plan
Defined benefit plans that employees will receive upon retirement. Actuarial and investment risks remain with the employer. If company makes risky investments during life of fund, they will make losses up when paying back to employees.
Companies need to recognise a and l ( it has control and bear the risks of all the money)
Defined benefit plan, FV pension plan asset and pv defined benefit obligation
Fv (pension plan asset) employees investment from contributions to funds
Pv (defines vendor obligation)
Increases every year as employee works year longer
Based on life expectancy and retirement age
Discount
Real world:
Surplus: FV (plan assets) > PVDBO > net dba (asset)
Deficit: fv (plan assets) < pvdbo > net dbo liabitly
Changes in net dbo or dba
Service costs go to operating pl (serving one extra year)
Net interests go to financial pl (interest expense that increases time value of money)
Remeasurements go to oci (gains/losses originated in dbo)
Example
Company xyz present closing balance 31 dec 2014 of 60m for plan assets and 64m for plan liability (dbo)
The actuary provides the following info on 31 dec 2015
Current service costs 9m Last service costs 8m Contributions paid to the plan 5m Benefits paid out to retired employees 6m fv(plan assets) at 32 dec 2015 Fv (plan liabilities) at 31 dec 2015 Yield on high quality corporate bonds 5%
Calculate amounts on31 dec 2015
Step 1 - compute deficit or surplus (B/S)
Fv plan assets > pv dbo; 66m < 75m
This year they experience a deficit > increase net dbo by 9m
Step 2 - computer effects on Pl
Service costs -9-8 = -17m (operating pl)
Interest expense 5% x 64m = -3.2m (financial pl)
Interest revenue 5% x 60m = +3m (financial pl)
Step 3 compute effect on OCI:
Op balance 60 Return on plan asset 3 Don’t to plan 5 Reimbursement -6 Total plan asset 62 Vs fv plan asset 66 so gain of 4
Liability Op balance 64 Service cost 17 Interst expense 3.2 Paid out to employees -6 Total plan liability 78.3 Vs fv plan liability 75 so gain of 3.2
Therefore overall gain of 4+3.2 = 7.2m
Accounting for termination benefits
Termination benefit is promise of payment or bonus to laud off personnel
Company recognises expense and liability. Can’t withdraw offer of benefits. Part of restricting (ias37) to pay termination benefits.
If settled within 12 months account for short term employee benefits without discounting
If not expected to settle within 12 months account for other long term employee benefits with discounting
Accounting for other long term employee benefits
Other employee long term benefits: employee benefits other than s/t, Post employment and termination benefits eg
Long term paid absences (sabbatical)
Long serve benefit bonus (25 years bonus w company)
Deferred remuneration (salaries / bonuses paid well after the due date.
Recognition > similar to defined benefit plans
Service cost + net interst (rev - expense) + remeasuremtns =pl
