Unit 2 – IAS 19

Accounting for employee Benefits ( IAS 19)

Class presentation – Daniel Kamotho

 INTRODUCTION

• While accounting for wages, salaries and other short-term benefits is

relatively straightforward, post-employment benefits can be more
troublesome
• All benefits provided to employees, both ST and LT, should be accounted
for to ensure that an entity’s financial statements reflect a liability when
employees have worked in exchange for future benefits
• The objective of IAS 19 Employee Benefits is to specify the accounting
and disclosure requirements for employee benefits
• IAS 19 applies to an employer in accounting for employee benefits
(except those for which IFRS 2 Share-based Payment applies and
employee benefit plans under IAS 26 Accounting and Reporting by
Retirement Benefit Plans).
Objectives and scope
• Accounting and disclosure of

Short term Post

employee employment
benefits benefits

Other long term Termination

employee benefits benefits
 Big picture
IAS 19 – Employee benefits

Short-term Post- Termination

Other long-term
employee employment benefits before
benefits
benefits benefits (IAS 19.153-158) retirement
(IAS 19.9-25) (IAS 19.26-152) (IAS 19.159-171)

Payable wholly Payable after Payable after 12 Benefits payable

within 12 months retirement months on termination of
employment

Defined Defined
Contribution Benefit

Fund rules define the Fund rules define the

contribution made by benefit payable to
the company E’ees
 The Objective of IAS 19
The objective of this Standard is to prescribe:
(a) the accounting; and

(b) disclosure for employee benefits.

 The Objective of IAS 19

The Standard requires an entity to recognise:

(a) a liability when an employee has provided service in

exchange for employee benefits to be paid in the future; and

(b) an expense when the entity consumes the economic

benefit arising from service provided by an employee in
exchange for employee benefits.
 Short term employee benefits

Examples

Definition Accounting
treatment
 Short-term employee
benefits
• All forms of consideration in exchange for services
rendered by employees that are payable within 12
months of the service being rendered (other than
termination benefits)
• Examples include wages, salaries, paid holidays, sick
leave and bonuses payable within 12 months of the
service being rendered
• Should be recognised as service is rendered
Recognition and measurement: All short-
term employee benefits

Short-term employee benefits are employee benefits

(other than termination benefits) which fall due wholly
within twelve months after the end of the period in
which the employees render the related service.

When an employee has rendered service to an entity

during an accounting period, the entity shall recognise
the undiscounted amount of short-term employee
benefits expected to be paid in exchange for that
service:
Recognition and measurement: All short-
term employee benefits

(a) as a liability (accrued expense), after deducting any

amount already paid. If the amount already paid exceeds
the undiscounted amount of the benefits, an entity shall
recognise that excess as an asset (prepaid expense) to the
extent that the prepayment will lead to, for example, a
reduction in future payments or a cash refund; and

(b) as an expense, unless another Standard requires or

permits the inclusion of the benefits in the cost of an
asset (see, for example, IAS 2 Inventories and IAS 16
Property, Plant and Equipment).
 Short-term employee benefits: Example 1
Accounting Standards 19.4
Number of employees 10

Gross salary (p/m) R20 000

Deductions:
PAYE (R4 000)
Provident fund (7.5% of gross) (employee contribution) (R1 500)
Other statutory deductions(400)
Net salary R14 100
Employer contributions:
Provident fund (7.5% of gross) R1 500
Other statutory employee costs R1 000

Net salaries are paid at the end of the month and deductions are paid at the
beginning of the next month
 Short-term employee benefits: Solution 1

Journal entries for December 20.8 (monthly):

Dr Salary costs (P/L) 200 000
Cr SARS: PAYE (SFP) 40 000
Cr Provident fund (SFP) (employee contribution) 15 000
Cr Other creditors (SFP) 4 000
Cr Cash (SFP) 141 000

Dr Salary costs 25 000

Cr Other creditors 25 000
(employer’s contribution R15 000 + other costs R10 000)
Special considerations:
Profit-sharing / bonuses

• Profit-sharing and bonus pay (p.19)

• Should be recognised / provided for when:
• the enterprise has a present legal or constructive obligation
to make such payments as a result of past events (refer to
IAS 37 for guidance on ‘constructive obligations’), and
• a reliable estimate of the obligation can be made
• I.e. It meets definition and recognition criteria of a liability

• Note: Share-based payments in terms of company share schemes as

bonuses are accounted for in terms of IFRS 2: share-based payments are
outside the scope of the course – FAC 310
 Bonus accrual: Example 2

Benjamin Ltd does not have a contractual obligation to pay bonuses to

employees, but the directors decided to pay a bonus of R5 000 per
employee based on services provided during the year.
An announcement was made to employees during the last week in
December 2015 and the bonuses were paid during January 2016.
SARS grants a deduction for bonuses when paid in cash.
The tax rate is 30%.
Deferred
tax? Timing
difference…
 Bonus accrual: Solution 2

31 Dec 2015 – have an obligation

Dr Salary costs (P/L) 50 000

Cr Other creditors (SFP) 50 000

Dr Deferred tax asset (SFP) 15 000

Cr Income tax expense (P/L) 15 000

Carrying Tax Temporary Rate Deferred tax

amount Base difference Liability/Asset
(CA – amount
deduct in future)

50 000 0 50 000 30% 15 000 Asset

 Bonus accrual: Example 3

Entity A has a December year end. It pays bonuses to employees who

provided services during the year and remain on the payroll at 31 March
the following year.
The bonus is determined as 5% of the entity’s profit after tax and each
employees’ entitlement is determined at 31 December.
There is no re-allocation of the amount payable to each employee if
employees leave before 31 March.
On average, 1% of employees leave each month.
The profit after tax for the 20.14 year amounted to R100m.
 Bonus accrual: Solution 3
Bonus pool for the year ended 31 Dec 20.14:
R100 000 000 x 5% R5 000 000
Expected amount payable [R5m (5% of R 100 mil) x (100%-3%)] R4 850 000

Journal entries for year ended 31 December 20.14:

Option 1 (preferred conceptually)
Dr Salary costs (P/L) 3 880 000
Cr Other creditors (SFP) 3 880 000
(R4 850 000 x 12/15 – accrue up to payment date, therefore 12 months in current period and 3 months will only be
accrue in 20.15)

Option 2 (can be argued as standard is not clear)

Dr Salary costs (P/L) 4 850 000
Cr Other creditors (SFP) 4 850 000
Both options:
Dr Deferred tax asset (SFP) 28% of carrying amount
Cr Income tax expense (P/L)
Building your vocabulary: Short-Term Employee Benefits
Definition: Short-term employee benefits include:
Absences. Compensated absences where payment is settled within 12 months of when employees render
related services, for example, vacation, short-term disability, jury service, and military service.
Base pay. Wages and social security contributions.
Nonmonetary benefits. Medical care, housing, cars, and various subsidies for other goods or services.
Performance pay. Profit sharing and bonuses payable within 12 months of when employees render
related services.

The entitlement to compensated absences can be accumulating or non-accumulating.

An accumulating compensated absence is carried forward and can be used in future periods.
An accumulating compensated absence can be vesting, so that employees are entitled to a
cash payment for unused entitlement when they leave the entity. If an accumulating
compensated absence is non-vesting, then employees do not receive such a cash payment
when they leave the entity.

Source : http://www.accountingtools.com/dictionary-short-term-employee
Definitions

Accumulating

Short term
compensated
absences

Non-
accumulating
 Short-term employee
benefits
• Recognise undiscounted amount of benefit earned by an
employee in return for service provided as an expense in
SPLOCI – P/L
• An asset or liability in the SFP arises if there is a prepayment
or accrual
• For accumulating paid absence (e.g. holiday entitlements),
recognise an expense when employee renders service that
increases the entitlement to absence
• For non-accumulating paid absence (e.g. sick day), recognise
the expense when the absence occurs
Accumulating compensated
absences
• Accumulating absences relate to, for example, paid holiday
allowances that can be carried over into the next accounting
year.

• These should be expensed in the years they are earned by

the employee and the expected cost of any unused amount
that has been accumulated at the balance sheet date should
be shown as a liability.
 SHORT TERM PAID ABSENCES
Included in employment contract/ package
Vacation
Sick
Disability
Maternity
Paternity
Military
• Accumulated (carried forward if not used) vs
• Non-Accumulated (forfeited if not used):
• Entity no obligation to employee Accumulated leave then can be:

• Vesting accumulated or Non-Vesting accumulated

 SHORT TERM PAID ABSENCES
Accumulated vs Non-Accumulated
• Expense: service is rendered (increase entitlement)
• Expense: when absence occurs
• Create corresponding PROVISION for unused leave

= Expected nr of days to be taken x tariff p/day Paid out

Vesting accumulated vs Non-Vesting (no cash only to be taken in days in future)

accumulated
• Entitled to cash payments or titled leave days in future
• Unused leave days utilised & carried forward
• Liability & estimate
• Forfeited
SHORT TERM PAID ABSENCES
• Accumulated leave
• Create corresponding PROVISION for unused leave
• Since you OWE the employee
• Employee has worked TOO much for entity

= Expected nr of days to be taken x tariff p/day Paid out

Average employee salary Estimated average days cost per

Leave owing per employee day
 SHORT TERM BENEFITS
Basic salary vs Cost to Company
Gross salary & all contributions of employee CTC:
All costs regarding employee that company must pay

Profit-sharing plan & Bonus plans

Present legal/ constructive obligation
Past events & reliably estimated
(fixed formula, fixed amount, prior figures)

Non-monetary benefits
Included as staff costs
Tax purposes = fringe benefit
 Non Accumulating compensated
absences – Par 13
• Non accumulating absences are things such as holiday that
employees can take during the year, but lose if they have not
taken it by the accounting year end, or to a compensated sick
leave allowance per year, where the employee has not used the
full allowance (and it cannot be carried over).
• These short term compensated allowances are expensed as
they arise, and no liability is created at the year end.
• Where, however, the company’s accounting year and benefit
year do not coincide, such that, at the accounting year end
employees can carry forward the leave, it is treated as
‘Accumulating absence’.
 Paid annual leave
entitlement
ABC Limited has 1,000 employees and each employee is entitled
to 30 days’ paid annual leave each year. The holiday year
commences 1 July each year and, at the company’s financial year
end of 31 December 2016, employees had on average each taken
10 days leave in the six months to 31 December 2016. The leave is
non accumulating.
Requirement
Assuming an annual salary of N$30,000 and a working year of 250
days, calculate the provision to be made in the financial
statements at 31 December 2016.
 Paid annual leave
entitlement
Solution:
As employees are entitled to holiday leave of 15 days each at
31 December 2016 (6/12 months x 30 days), it is necessary for
an additional 5 days (15 days – 10 days).
1,000 employees x 5 days x N$120 per day = N$600,000 (before
any associated employer related taxes).

Note
There is no change had the leave been accumulating.
 Profit-sharing plan
XYZ Limited, a company that prepares its financial statements to 31
December each year, agreed a profit sharing plan with its employees
on 1 January 2015. Under the terms of the plan, the company agreed
to pay 10% of its profits after tax on a pro rata basis to staff who had
been employed throughout the whole year. While on 1 January 2016
XYZ had 500 employees, only 300 of these employees were still
employed by the company on 31 December 2016. XYZ Limited’s profit
after tax for the year ended 31 December 2016 was N$1,000,000.
Requirement
How should XYZ Limited recognise the profit sharing plan as at 31
December 2016.
 Profit-sharing plan
Solution:
XYZ Limited should recognise a liability and an expense of
N$60,000 (that is 10% x 60% employees remaining x
N$1,000,000)
SHORT TERM EMPLOYEE BENEFITS

• To be settled within 12 months

• After the end of the period in which employee renders
• Renders related service
• Other than termination benefits

• Salaries & Wages & Paid leave (annual & sick)

• Profit sharing & bonuses
• Non-monetary benefits
• DR: Expense
• CR: Bank (if paid) or Accrual/ Liability (not yet paid)
@discounted amount
Short-term paid absences: decision tree (para. 13)

Can the short-term compensated

Yes absence be carried forward to be No
used in a future period?

Are employees who leave entitled

to cash in respect of any unused No
entitlement?

Yes

Recognise when Recognise when Recognise when

service is rendered for service is rendered for absence occurs.
full entitlement. entitlement taking into
account possibility
that employees will
leave.

Source: PwC Manual of Accounting 2012

 Post-employment
benefits
• Includes plans
retirement benefits, such as pensions, and other post-
employment benefits, such as post-employment medical care that
are payable after the completion of employment
• Most common are defined contribution and defined benefit
pension plans
• Accounting treatment depends on type of plan
• Defined contribution plan
 Contributions are paid into a separate fund
 Entity has no further legal or constructive obligation to the fund
 The risk of fund deficit lies with the employee
• Defined benefit plan
 A post-employment benefit plan other than a defined
contribution plan
Defined contribution pension
plan
• Recognise the contribution payable to a defined
contribution plan in exchange for services rendered by
an employee in an accounting period
• Recognise amount as an expense in SPLOCI – P/L unless
another standard permits its inclusion in the cost of an
asset
• An asset or liability arises in the SFP if there is a
prepayment or accrual
 POST EMPLOYMENT BENEFITS
Defined CONTRIBUTION plan
• Entity pays fixed contribution to another separate fund/ entity
• No legal/ constructive obligation to pay further if fund does not hold
sufficient assets to pay out employees.

Characteristics:
• Obligation is limited to agreed contribution made by employer
• Employee retires: amount received = Actual amount contributed
• Actuarial & investment risk falls on employee
Defined CONTRIBUTION plan
• Recognise EXPENSE & corresponding LIABILITY
• Contributions paid will reduce Liability’s balance
• Measurement: Actual contributions
• @ undiscounted basis
• Contribution paid > Contribution due “suppose to
pay”
• Excess = Prepayment/ Prepaid expense (asset)
 Defined contribution
pension plans
Angula Limited operates a defined contribution pension plan for its
employees. The company’s contribution rate to the pension fund is 5% of
gross salaries. During the year ended 31 December 2016, gross salaries
amounted to N$6 million. For convenience, a regular amount of N$20,000
was transferred monthly into the pension fund by the company, with the
balance being paid by the company in January 2017.

Requirement
Calculate the amounts to be included in the SPLOCI of Angula Limited for
the year ended 31 December 2016 and the SFP as at that date.
 Defined contribution
pension plans
Solution:
The SPLOCI – P/L expense for 2016 is based on 5% of gross salary cost of N$6 million
= N$300,000*.
As payments of N$240,000 were made during 2016 (N$20,000 x 12 months), an
accrual of N$60,000 is required in the 2016 SFP .
While this is due to be paid in January 2017, if it was not due to be paid within 12
months of the end of the reporting period, the outstanding contributions should be
discounted to their present values.
* The expense may be capitalised as part of the cost of an asset where required or
permitted by another accounting standard (for example IAS 2 or IAS 16).
 Defined benefit pension plans
• Post-employment plans other than defined contribution
plans
• Plan obligations may be financed by contributions to a
separate fund set up to meet employee benefit payment
when they are due
• As the employer effectively agrees to pay a promised level
of benefits, this exposes the enterprise to actuarial and
investment risks
• If the assets exceeds the obligation, the plan is in surplus. If
the obligation exceeds the asset, the plan is in deficit
Defined BENEFIT plan
PLAN ASSET ACCOUNT
• DR: defined benefit plan asset CR: Bank
• Measured @FV
• Interest @discount rate (income CR and DR plan assets)

Opening balance + Interest income + Employer & Employee

contributions – Benefits paid – Closing balance = RETURN ON
PLAN ASSETS
Defined BENEFIT plan
PLAN OBLIGATION ACCOUNT
• DR: employee benefit expense CR: defined benefit
obligation
• Measured @PV based on actuarial assumptions

Opening balance + Interest expense + Service costs – benefits paid -

Closing balance = ACTUARIAL GAIN OR LOSS
Defined BENEFIT plan
• Funded = set aside assets (plan assets)
• Net liability (surplus or deficit) = PV of future obligation – FV
of plan assets

Accounting treatment (Steps):

1)Determine PV of the defined benefit obligation
2)Determine FV of the plan assets
3)Determine the net defined benefit asset/liability
4)Recognise amounts in P/L
5)Recognise amounts in OCI
 Defined benefit pension
plans
With respect to the accounting treatment, the key
elements are:
• SFP
• Current service cost
• Past service cost
• Re-measurements
• SPLOCI
Each of these is now addressed in turn.
 Statement of financial position

The SFP figure, which could be a net asset or liability, will

arise as follows:
1.Opening SFP – i.e. a net defined benefit pension asset
or obligation
2.Current and past service costs – these increase the
liability, with the corresponding expense being
recognised in SPLOCI – P/L. Past service costs are
recognised in the period of the plan amendment (See
Past Service Costs later)
Statement of financial position – Cont.
3. Net interest expense/income – a discount rate based upon market yields
at the end of the reporting period on high quality corporate bonds is
applied to the defined benefit pension obligation at the beginning of the
reporting period. The same interest rate is also applied to the carrying
value of the defined benefit pension plan assets at the beginning of the
reporting period to identify an amount of interest income (if any). The net
interest expense or income is recognised in SPLOCI – P/L.
4. Re-measurement – the net difference between the actual return on the
defined benefit pension plan assets and obligations and the expected (see
(iii) above). It is recognised through other comprehensive income (OCI).
5. Closing SFP – this will show either a net defined benefit pension asset or
obligation depending upon each of the above.

(Items 2, 3 and 4 are addressed in more detail later.)

 Statement of financial position
• Pension plan assets are measured at fair value
(market value)
• An actuarial valuation method known as the
Projected Unit Credit Method must be used to
measure defined benefit liability / obligation and
the current and past service costs
 Current and past service
costs
Current service costs
Current service costs increase the present value of the obligation resulting from
employee service in the current period.

Past service costs

Past service costs change the present value of the obligation for employee
service in prior periods. They arise from amendments to the terms and
conditions of a defined benefit plan or a curtailment. Additional costs arise
where new benefits are introduced or existing benefits are improved. Costs are
reduced where existing benefits are reduced. Past service costs should be
recognised in the period of the plan amendment (they are no longer spread
over future periods).
Past service costs
Cork Limited, a company that prepares its financial statements to 31 December each
year, operates a defined benefit pension plan that provides company employees
with a pension of 3% of their final salary for each year of service with the company.
The benefit becomes vested after 5 years of service. On 1 January 2016 Cork Limited
improved the terms to 4% of final salary for each year of service starting from 1
January 2009. At the date of improvement (1 January 2016) the present value of the
additional benefits for service was:

Employees with less than 5 years of service on 1 January 2016, with the average
period until vesting being 3 years: N$300,000
Employees with more than 5 years service on 1 January 2016: N$500,000

Based upon the information provided, the change in terms would result in a charge
(expense) in the 2016 SPLOCI – P/L of Cork Limited of N$800,000.
 Re-measurements
• All changes between the opening and closing plan assets and liabilities should be
disaggregated into three components: current and past service cost, net interest
income/expense and remeasurements
• Service cost and net interest income/expense are presented in arriving at profit or
loss
• Re-measurements are the remaining changes in the plan assets and liabilities and
are included in OCI. They represent period-to-period fluctuations in the long-term
value of the net pension asset or liability.
• Re-measurements include actuarial gains and losses and the net return on plan
assets.
• The net return on plan assets is calculated as the actual return on plan assets less
the amount of imputed interest income on the plan assets that is included in net
interest income/expense. Unlike some components of OCI, pension re-
measurements should never be recycled to profit or loss in subsequent periods
Defined benefit obligation
• Current service cost
• Past service cost
• Gains/ losses on settlement
• Interest cost on defined benefit obligation
• Benefits paid

Plan assets
• Setting aside assets over working life of an employee to be used to
pay the benefits when they are due.
• Measured @FV and deducted from DBO = Net Defined Benefit
Liability (asset)
Plan assets
• Contributions to plan
• Interest income
• Benefits paid
• Settlement gains & losses
• Valuation of plan assets
• Calculation of return on plan assets
• Reimbursement rights
• FV of insurance policies
 SPLOCI – P/L

• The figure to be recognised in arriving at profit or loss is made up

of:
 current and past service costs; and
 net interest expense/income.
• The net interest expense/income on the net pension liability or
asset represents the financing cost/income of deferring payment
or pre-paying employee services. It is calculated by multiplying
the net pension liability or the net pension asset at the start of
the period by the discount rate used to measure the pension
liability.
 SPLOCI – P/L
• The net interest income or expense is the difference between the
interest expense on the pension liability, calculated using its
discount rate, and interest income imputed on the plan assets
using the same rate. If the interest on the pension liability
exceeds the imputed interest on the plan assets, it will be net
interest expense. If the imputed interest on the plan assets
exceeds the interest on the pension liability, it will be net interest
income.
 SPLOCI – P/L
• IAS 19 does not specify where the individual components of net pension
cost should be displayed, beyond specifying that service cost and net
interest income or expense should go to profit or loss, while re-
measurements go through OCI unless another IFRS permits or requires
their inclusion in the cost of an asset (e.g. the cost, or some portion of it,
may qualify for capitalisation as a cost of inventory under IAS
2 Inventories).
• Consequently, a portion may remain in inventory at period end, while a
portion may be in cost of sales. The portion, if any, that did not qualify
for capitalisation should be included in arriving at profit or loss as well. It
should be included in the same line item in which the company’s related
compensation expenses are presented (for example, within selling
expenses or administrative costs).
Accounting for defined benefit pension plans (1)
The following information is provided with respect to the defined benefit pension
plan of Rush Limited for the year ended 31 December 2016.
N$000
Fair value of plan assets at 1 January 2016 1,800
Present value of obligation at 1 January 2016 2,000
Service cost 250
Benefits paid 300
Contributions paid 200
Fair value of plan assets at 31 December 2016 2,200
Present value of obligation at 31 December 2016 2,800

The yield on blue chip corporate bonds at 1 January 2016 was 10% and all the
benefits and contributions were paid on 31 December 2016.
Requirement
Show how the defined benefit pension plan would be accounted for in the financial
statements of Rush Limited for the year ended 31 December 2016.
 Accounting for defined benefit pension plans (1)
Asset Obligation P/L OCI
N$000 N$000 N$000 N$000
At 1 January 2016 Opening Balances – A & O 1,800 2,000
Debit Credit
Service cost SPLOCI – P/L Obligation 250 (250)
Benefits paid Obligation Asset (300) (300)
Contributions paid Asset Bank 200
Net interest expense:

Asset Asset P/L – finance cost

180 180
Obligation P/L – finance cost Obligation 200
_____ _____ (200)
1,880 2,150
Re-measurement - fair value
Asset OCI
gain on asset 320 320

Re-measurement - actuarial loss

OCI Obligation
on obligation
_____ 650 ____ (650)
At 31 December 2016 Closing Balances – A & O 2,200 2,800 (270) (330)
The net obligation is therefore N$600,000.
POST EMPLOYMENT BENEFITS
Other considerations
• Multi-employer plans
• Group administration plans
• State plans
• Insured benefits

T-accounts for DBP:

• Plan assets
• Plan obligation
• Plan assets Ceiling adjustment
• Employee benefits expense
• Re-measurements
 Other long-term benefits
• All employee benefits other than short-term employee
benefits, post-employment benefits and termination
benefits
• Examples include: long service leave; sabbatical leave; long-
term disability benefits; deferred compensation; and profit
sharing and bonuses payable 12 months or more after the
end of the period in which the employees render the related
service
• The accounting treatment for other long-term benefits is
similar to that for defined benefit pension plans, albeit that
in practice it is a little more straightforward.
OTHER LONG TERM BENEFITS
• All employee benefits other than short-term, post employment and
termination benefits. Examples:
• Long-term paid absences
• Jubilee and other long-service benefits
• Long-term disability benefits

Recognition & Measurement: (similar to DBP)

• SCI (P/L) = Current service cost + net interest + actuarial gains/losses +
past service cost + return on plan assets.
• SFP = PV of defined benefit obligation – FV of plan assets
 IAS 19 Employee Benefits

Termination Benefits:
• Are to be recognised as a liability and expense when the enterprise
is demonstrably committed to either:
a)Terminate the employment of employees before the normal
retirement date
b)Provide termination benefits as a result of an offer made to
encourage voluntary redundancy
Termination benefits
• Employee benefits provided in exchange for termination of employment as a
result of either:
 Termination of employment before normal retirement date; or
 Employee decision to accept offer of benefits in exchange for termination
• Termination benefits are a separate category of employee benefits because the
event that gives rise to the obligation is the termination rather than employee
service
• Examples include (i) redundancy payments, (ii) salary until end of a period if the
employee renders no further service
• Liability for termination benefits can only be recognized if the enterprise is
demonstrably committed to a termination (IAS 37)
• Liability must be measured at PV if the benefits fall due more than 12 months
after reporting date
• For a voluntary redundancy offer, termination benefits must be measured based
on the number of employees expected to accept the offer
TERMINATION BENEFITS
Recognition & Measurement:
• DR: expense and CR: liability
• @ undiscounted amount (discount < 12months after
reporting period)
• Entity = demonstrably
CONCLUSION
PENSION OBLIGATION N$
Present value of obligation at start of period 800,000
Interest cost at (say) 10%* [DR SPLOCI – P/L & CR Plan Obligation (PO)] 80,000
Present value of service cost for period [DR SPLOCI – P/L & CR PO] 160,000
Benefits paid during period [DR PO & CR Bank] (75,000)
965,000
Present value of obligation at end of period 1,100,000
Remeasurement – actuarial loss on obligation 135,000

PLAN ASSETS N$
Fair value of plan assets at start of year 700,000
Return on plan assets* [DR Plan asset (PA) & CR SPLOCI – P/L] 70,000
Contributions [DR PA & CR Bank] 200,000
Benefits paid during period [DR Bank & CR PA] (75,000)
895,000
Fair value of plan assets at end of year 1,050,000
Remeasurement – fair value gain on asset 155,000

* The yield on blue chip corporate bonds at start of year

CONCLUSION
STATEMENT OF FINANCIAL POSITION N$
Fair value of scheme assets at end of period (see PA) 1,050,000
Present value of scheme obligation at end of period (see PO) (1,100,000)
Net pension scheme liability (50,000)

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE

INCOME
N$
Present value of current service cost for period 160,000
Net interest cost 10,000
170,000

REMEASUREMENTS (THROUGH OCI) N$

PA gain 155,000
PO Loss (135,000)
20,000
* The yield on blue chip corporate bonds at start of year
 Roadmap ahead
What you need to do after the unit?
1. Read and Work through the slides and redo all the class examples (60 min);
2. Review the class examples in Accounting Standards to make the theory
practical (90 min) ;
3. Read through the paragraphs in the standard and do the examples in the
Graded Questions (120 min)
4. Add to your own big picture the understanding of key principles and exceptions
and prepare your IFRS for assessment( 30 min)
5. Attempt the questions in the E-learning platform – quizzes, tests and past
examinations, under exam conditions to prepare you for the next assessment
(120 min to do and 60 min to mark).
SUGGESTED SELF-STUDY TIME = 8 HOURS