Chapter 9 – Employee Benefits
Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. PAS 19 prescribes the accounting and disclosure by employers for employee benefits. Such benefits included in the standard are short-term employee benefits, postemployment benefits, long-term employee benefit, and termination benefits.
1) Short-term employee benefits – 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. These benefits include: a. Salaries, wages and social security contribution
b. Short-term compensated absences such as paid annual leave and sick leave (entitlement to compensated absences falls into two categories: accumulating and nonaccumulating absences. The former are those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full, may either be vesting or being entitled to a cash payment for unused entitlement, or nonvesting or being not entitled to cash payment. The latter category 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.) c. Profit sharing and bonuses payable within twelve months (cost of profit-sharing and bonus plans shall be recognized by an entity when it has a present or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made.) d. Nonmonetary benefits such as medical care, housing, car and free or subsidized goods
Accounting for short-term benefits and its principles: a. No actuarial assumptions to be made and there is no requirement to discount future benefits because they’re all payable no later than twelve months after the end of current reporting period. b. Short-term benefits are measured on an undiscounted basis, thus no actuarial gains/losses. c. Unpaid short-term benefits at the end of accounting period shall be recognized as accrued expense. d. Any short-term benefits paid in advance shall be recognized as prepayments, to the extent, that it will lead to a reduction in future payments or cash refund. e. The cost of short-term employee benefits shall be recognized as expense in the period when the economic benefit is given, except when such cost may be included in the cost of an asset.
2) Postemployment benefits – employee benefits, other than termination benefits, which are payable after completion of employment which include: a. Retirement benefits such as pensions
b. Postemployment life insurance
c. Postemployment medical care
Postemployment benefits are usually embodied in an arrangement known as “postemployment benefit plan”. These plans are formal and informal arrangements under which an entity provides postemployment benefits for one or more employees. Postemployment benefit plans are classified as either defined contribution plans or defined benefit plans depending on the economic substance of the plan as derived from its principal terms and conditions. Such plans may be contributory or noncontributory, and funded or unfunded. Contributory plan – the employer and employee make contributions to the retirement benefit plan but they do not necessarily contribute equal amounts. They both share in the retirement benefit cost. Noncontributory plan – only the employer makes contributions to the retirement benefit plan. The employer shoulders all the retirement benefit cost. Funded plan – the entity sets aside funds for future retirement benefits by making payments to a funding agency, such as a trustee, bank or insurance company. The funding agency is then responsible for the accumulation of funds and for making payments to retired employees when the benefits become overdue. Unfunded...
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