CHAPTER 17: POSTEMPLOYMENT

BENEFITS Non-contributory - only the employer

contributes for the retirement benefits of the
employee.
EMPLOYEE BENEFITS
FUNDED VS. UNFUNDED
- *All forms of consideration given by an entity
in exchange for service rendered by • Funded - a fund is transferred to a trustee
employees." (PAS 19.8) who will manage the fund. The trustee
assumes obligation of paying retirement
EXPECTED QUESTIONS: benefits out from the fund and directly to
retiring employees.
What is the defined benefit cost to be reported
in the • Unfunded - no fund is transferred to a
profit of loss (a.k.a. benefit expense)? trustee. The employer retains the obligation
of paying retirement benefits to employees.
What is the defined benefit cost to be reported
in the statement of OCI (a.k.a. ACCOUNTING FOR DEFINED
remeasurements)? CONTRIBUTION PLAN

What is the balance of the plan asset as of - The accounting for defined contribution
December 31 in the memorandum records? plans is straightforward because the
reporting entity's obligation for each period
What is the balance of projected benefit is determined by the amounts to be
obligation (PBO) as of December 31 in the contributed for that period.
memorandum records?
- Consequently, no actuarial assumptions
What is the accrued benefit obligation or are required to measure the obligation or the
prepaid benefit asset as of the year end? expense and there is no possibility of any
actuarial gain or loss.
What is the amount of overfunding or
underfunding for the year? ACCOUNTING FOR DEFINED BENEFIT
PLAN
FOUR CATEGORIES OF EMPLOYEE
BENEFITS - The accounting for defined benefit plans is
UNDER PAS 19 complex because actuarial assumptions are
required to measure the obligation and the
1. Short-term employee benefits expense and there is a possibility of
2. Post-employment benefits actuarial gains and losses.
3. Other long-term employee benefits
4. Termination benefits - Obligations are measured on a discounted
basis.
OTHER RELEVANT TERMS
COMPONENTS OF DEFINED BENEFIT
CONTRIBUTORY VS. NON-CONTRIBUTORY COST

Contributory - both the employee and employer 1. Service cost

contribute for the retirement benefits of the a. Current service cost
employee. b. Past service cost
c. Any gain or loss on settlement
2. Net Interest

a. Interest expense on defined benefit obligation

b. Interest income on plan assets
c. Interest expense on effect of asset ceiling

3. Remeasurement

a. Remeasurement of plan assets

b. Remeasurement of projected benefit obligation
c. Remeasurement of the effect of asset ceiling.

- The 1 and 2 are included in p/l as a component of employee benefit expense.

- All of the remeasurements are fully recognized through other comprehensive income.

ACTUARIAL VALUATION METHOD

- the projected unit credit method, sometimes known as the accrued benefit method, shall be
used in determining the pv of the defined benefit obligation and the related current service
cost and where applicable, past service cost.

CURRENT SERVICE COST

- Is the increase in the present value of the defined benefit obligation resulting from employee
service in the current period.

NET INTEREST

- Net interest on defined benefit liability or asset is the change in the defined benefit obligation,
plan assets and effect of asset ceiling as a result of the passage of time.

PAST SERVICE COST

- Is the change in the pv of defined benefit obligation for employee service in prior periods
resulting from a plan amendment or curtailment.

PLAN ASSETS

- Comprise assets held by a long term benefit fund and qualifying insurance policies.

QUALIFYING INSURANCE POLICY

- Is an insurance policy issued by an insurer that is not a related party of the reporting entity.

PROJECTED BENEFIT OBLIGATION

- Is the actuarial pv of all benefits attributed by the pension benefit formula to employee
service rendered before a
specified date based on future compensation level.
CHAPTER 18:

BASIC ACCOUNTING CONSIDERATIONS

- The benefit plan shall be viewed as subentity separate and distinct from the primary entity, which
is the
employer entity.

- The subentity maintains information that does not appear in the financial statements of the primary
entity.

The information contained in the memorandum records of the subentity contains the ff:

a. Fair value of plan assets (FVPA) - is the source of fund set aside in meeting future benefit
payments.

b. Projected benefit obligations (PBO) - or the defined benefit obligation is the pv of expected future
payments required to settle the obligation arising from employee service in the current and prior
periods.

PREPAID/ACCRUED BENEFIT COST

- Observe that the prepaid/accrued benefit cost account is the balancing figure.

SETTLEMENT OF PLAN

- A settlement is a transaction that eliminates all further legal of constructive obligations for part or
all of the benefits provided under a defined benefit plan.

GAIN OR LOSS ON SETTLEMENT

- Is the difference between the settlement payment and the pv of the defined benefit obligation on
the date of settlement.

FVPA MORE THAN PBO

- The plan is overfunded and therefore there is a prepaid benefit cost or surplus.

REMEASUREMENT OF EFFECT OF ASSET CEILING

- PAS 19, p8, provides that any change in the effect of the asset ceiling, excluding interest on the
effect of the asset
ceiling is a remeasurement to be recognized through other comprehensive income.
CHAPTER 19:
TERMINATION BENEFITS
SHORT-TERM EMPLOYEE BENEFITS employee benefits provided in exchange for the
- are employee benefits (other than termination benefits)
termination of an employee's employment as a
that are due to be settled within 12 months after the end result of either:
of the period in which the employees render the related
service. 1. an entity's decision to terminate an employee's
employment before the normal retirement date; or
SHORT-TERM EMPLOYEE BENEFITS -
RECOGNITION AND MEASUREMENT
2. an employee's decision to accept an entity's offer
- When an employee has rendered service to an entity of benefits in exchange for the termination of
during an accounting period, the entity shall recognize employment.
the
undiscounted amount of short-term employee benefits TERMINATION BENEFITS - MEASUREMENT
expected to be paid in exchange for that service:
- initially and subsequently recognized in
1. as a liability (accrued expense), after deducting any
amount already paid.
accordance with the nature of the employee benefit.

2. as an asset (prepaid expense) if the amount paid is in a. If the termination benefits are payable within 12
excess of the undiscounted amount of the benefits months, the entity shall account for the termination
incurred; benefits similarly with short-term employee benefits.
provided, the prepayment will lead to a reduction in
future payments or a cash refund; and
b. If the termination benefits are payable beyond 12
3. as an expense, unless the employee benefit forms months, the entity shall account for the termination
part of the cost of an asset, e.g., as part of the cost of benefits similarly with other long-term benefits.
inventories or property, plant and equipment.
c. If the termination benefits are, in substance,
SHORT-TERM COMPENSATED ABSENCES enhancement to post-employment benefits, the
entity shall account for the benefits as post-
- Accumulating compensated absences are those that
are carried forward and can be used in future periods if
employment benefits.
the
current period's entitlement is not used in full. POST-EMPLOYMENT BENEFITS
Accumulating compensated absences may either be
- employee benefits (other than termination benefits)
1. Vesting - wherein employees are entitled to a cash that are payable after the completion of employment.
payment for unused entitlement on leaving the entity; or
Post-employment benefit plans are classified as
2. Non-vesting - wherein employees are not entitled to a either:
cash payment for unused entitlement on leaving the
entity 1. Defined contribution plans
- the employer commits to contribute to a fund which
Non-accumulating compensated absences are those will be used to pay for the retirement benefits of the
that are not carried forward. No liability or expense is employees
recognized until the absences occur, because employee
service does not increase the amount of benefit.
- risk that retirement benefit may be insufficient rests
OTHER LONG-TERM EMPLOYEE BENEFITS with the employee.

employee benefits (other than post-employment benefits 2. Defined benefit plans

and termination benefits) that are due to be settled
beyond
- the employer commits to pay retiring employees a
12 months after the end of the period in which the
employees render the related service. definite amount.

accounted for using the procedures applicable for a - risk that retirement benefit may be insufficient rests
defined benefit plan. However, all of the components of with the employer
the net benefit cost are recognized in profit or loss.