Scribd
Upload
48 views

Lesson Employee Benefit

Employee benefits can be short-term, post-employment, or long-term. Short-term benefits must be settled within 12 months and include salaries, bonuses, paid leave, and non-monetary benefits. Accounting for short-term benefits is straightforward as there are no actuarial assumptions. Post-employment benefits are paid after employment and include pensions and medical care. Benefit plans can be defined contribution, where the employer pays fixed contributions, or defined benefit, where the employer guarantees a specific benefit level. Defined benefit plans require complex accounting due to actuarial assumptions and potential gains/losses.

Uploaded by

Desiree Galleto
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
48 views

Lesson Employee Benefit

Employee benefits can be short-term, post-employment, or long-term. Short-term benefits must be settled within 12 months and include salaries, bonuses, paid leave, and non-monetary benefits. Accounting for short-term benefits is straightforward as there are no actuarial assumptions. Post-employment benefits are paid after employment and include pensions and medical care. Benefit plans can be defined contribution, where the employer pays fixed contributions, or defined benefit, where the employer guarantees a specific benefit level. Defined benefit plans require complex accounting due to actuarial assumptions and potential gains/losses.

Uploaded by

Desiree Galleto
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 18

EMPLOYEE

BENEFITS
• Employee benefits are all forms of consideration given by an entity in
exchange for services rendered by employees. PAS 19 prescribes the
accounting and disclosure by employers for employee benefits such as:
1. Short term employee benefits
2. Post employment benefits
3. Long-term employee benefits other than post employment benefits
4. Termination benefits
• Short term employee benefits are benefits other than termination benefits
which are due to be settled within 12 months after the end of the period in
which the employees render the relate services. These include:
1. Salaries, wages and social security contributions
2. Short-term compensated absences such as paid annual leave and sick leave
3. Profit sharing and bonuses payable within 12 months
4. Non monetary benefits such as medical care, housing, car and free or
subsidized goods
• Accounting for short-term employee benefits is fairly straight forward because there are no actuarial
assumptions to be made and there is no requirement to discount future benefits because they are all
payable no later than 12 months after the end of the current period.

• Rules for short term benefits


a) Unpaid short term employee benefits at the end of the accounting period shall be recognized as accrued expense
b) Any short term benefits paid in advance shall be recognized as a prepayment to the extent that it will lead to
reduction in future payments or a cash refund
c) The cost of short-term benefits shall be recognized as expense in the period when the economic benefit is given,
except when such cost may be included within the cost of an asset, like the PPE in accordance with another
standard.
Short term compensated absences
• An entity may compensate employees for absences for various reasons such as vacation, sickness and
short-term disability, maternity or paternity and military service. Entitlement to compensated absence
falls into two categories:
a) Accumulating compensated absences – are those hat are carried forward and can be used in future
periods if the current period’s entitlement is not used in full.
• Vesting –meaning employees are entitled to a cash payment for unused entitlement on leaving the entity
• Non vesting – meaning, employees are not entitled to a cash payment for unused entitlement on leaving the entity

b) Non accumulating absences – are those that do not carry forward. They lapse if the current period’s
entitlement is not used and do not entitle the employees to a cash payment for unused entitlement on
leaving the entity.
Profit sharing and bonus plans
• Under some profit sharing plans, employees shall receive a share of the profit only if they remain with
the entity for a specified period. Such plans create a constructive obligation as employees render service
that increases the amount to be paid if they remain in service until the end of the specified period. The
measurement of such constructive obligation reflects the possibility that some employees ma lea without
receiving profit sharing payments.
Post employment benefits
• Post employment benefits are employee benefits, other than termination benefits, which are payable after
completion of employment. These includes:
a) Retirement benefits, such as pension
b) Post employment life insurance
c) Post employment medical care
Post employment benefit plan
a) Contributory plan – employer and employee make contributions to the retirement benefit plan but they
do not necessarily contribute equal amounts. Both employer and employee share in the retirement
benefit cost
b) Non contributory plan – only the employer makes contributions to the retirement benefit plan. The
employer shoulders all the retirement benefit cost.
Defined Contribution Plan
• A defined contribution plan is a postemployment benefit plan under which an entity pays fixed
contribution into a separate entity known as the fund, and will have no legal or constructive obligation to
pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating
to employee service in the current and prior periods.

• The contribution is definite but the benefit is indefinite.

• The employee’s retirement benefit depends on how the plan has been managed by the trustee.
• If the plan provides exceptional investment performance, the employee will share in the gain in the form
of larger retirement benefit. If the plan does poorly, the employee will share in the loss by receiving
smaller retirement benefit.
Defined Contribution Plan
• In effect, the employee bears the investment risk in a defined contribution plan. Once the defined
contribution is paid, the employer has no more obligation under the plan.
Defined benefit plan
• A defined benefit plan – an entity’s obligation is to provide the agreed benefits to employees. In other
words, an employee is guaranteed specific or definite amount of benefit which is usually related to his
salary and years of service.

• Under this plan the employer bears the investment risk.


Multi-employer plan
• This is a defined contribution plan or defined benefit plan that pools the assets contributed by various
entities that are not under common control and uses those assets to provide benefits to employees of
more than one enitity.
Post employment benefit plan under the
law
a) Social Security System (SSS) – This postemployment benefit plan is a defined contribution plan
because the entity’s obligation is limited to specified contributions to the plan as a percentage of salary.
b) RA 7641 – this postemployment benefit plan is a defined benefit plan because the entity’s obligation is
to provide specific level of benefit for every year of service.
Accounting for defined contribution plan
• There are no actuarial assumptions to measure the contribution and there is no possibility of any actuarial
gain or loss.
Accounting for defined benefit plan
• Accounting for a defined benefit plan is complex because actuarial assumptions are required to measure
the obligation and the expense and there is possibility of actuarial gains and losses.

• If actuarial assumptions change the amount of required contributions will change and there may be
actuarial gains and losses. Consequently under a defined benefit plan, the expense recognized is not
necessarily the amount of contribution for the period.
Components of benefit expense
• PAS 19 enumerates the following components:
a) Current service cost
b) Interest cost
c) Expected return on plan assets
d) Actuarial gains and losses as required in accordance with the entity’s accounting policy
e) Past service cost
f) Effect of any curtailment or settlement
Actuarial valuation method
• PAS 19 requires that the projected unit credit method sometimes known as the accrued benefit method
shall be used in determining the present value of the defined benefit obligation and the related current
service cost and where applicable past service cost.

You might also like