M4: Employee Benefits (IAS 19)

Question 1

What are short-term employee benefits?

Answer 1

Benefits that are expected to be settled within 12 months of the end
of the period in which the employee provides service.

e.g.
 Wages and salaries (including national insurance contributions in the UK)
 Paid leave (eg holiday leave and sick leave)
 Profit-sharing and bonus plans
 Non-monetary benefits (eg company cars, free or subsidised goods and services, and medical cover)

Question 2

What is the month-end journal?

Answer 2

Dr Staff Costs (Gross salary plus Employer NIC’s)
CR Bank (Net salary to employee)
CR Liability to HMRC (PAYE, Employee and Employer NIC’s)

Question 2

What are post-employment benefits?

Answer 2

Benefits that are payable after the completion of employment, i.e.
pensions.

Question 3

Who does the risk lie with in Defined benefit and Defined contribution pension plans?

Answer 3

Defined benefit = Employer as they may need to pay more based on the plan

Defined contribution = Employee gets what their pension plan returns. No risk on employer.

Question 3

What is the difference between Defined contribution and Defined benefit pension plan?

Answer 3

Defined contribution is where % of employee salary goes into pension. This is then invested and when the employee retires, their return is based on how the plan has performed.

Defined benefit is where the employee is guaranteed an amount that reflects the period of service and salary at retirement e.g. 80% of final salary. The employer will make variable payments into the pension as the employee provides the service.

DC = Fixed payment, DB = Variable based on actuaries estimate if fund will fund the obligation or not meet it.

Question 4

What are termination benefits?

Answer 4

Benefits that are payable if an entity makes an employee redundant or the employee accepts voluntary redundancy.

Question 5

What are other long-term benefits?

Answer 5

Benefits other than short-term benefits, pensions and termination
benefits, e.g. long-term sabbatical leave.

Question 6

How do we account for a DC pension plan?

Answer 6

DR Staff cost SPL
CR Bank if paid/Current liability if not paid yet

Question 7

How do we account for a DB pension plan?

Answer 7

-

Question 8

When do we discount pension contributions?

Answer 8

ONLY AFTER more than 12 months after employee provided the service. otherwise we do not discount.