EMPLOYEE BENEFITS Contribution may be a fixed amount, a % of ER’s

income, a % of EE’s earnings or combination of

-all forms of consideration given by an entity in
these factors.
exchange for services rendered by employees or
Trustee determines his retirement benefit.
for the termination of employment.
-EE’s retirement benefit is dependent upon the
trustee’s management of the plan.
A. Postemployment benefits
-If the plan provides exceptional investment
-employee benefits other than termination
performance, EE will share in the gain in the
benefits and short-term employee benefits ,
form of larger benefit.
which are payable AFTER completion of
If the plan does poorly, EE will share in the loss
employment.
by receiving smaller benefit
- includes:
-EE bears the investment risk
a) Retirement benefits, (pension and lump sum
-Once DCP is paid, ER has no more obligation
payment on retirement)
under the plan.
b) Postemployment life insurance
-SSS
c) Postemployment medical care
ACCOUNTING for CONTRIBUTION PLAN
- classified as either defined contribution plans
-is straightforward because the
or defined benefit plans
obligation of the entity is determined by
- such may be contributory or noncontributory,
the amount contributed for each
Funded or unfunded
period.
Contributory plan- EE and ER both contribute to
-There are no actuarial assumptions to measure
the retirement plan but not necessarily equal
the contribution and there is no possibility of
amounts. Both share in the retirement benefit
any actuarial gain or loss.
cost
-Obligations are measured on an undiscounted
Noncontributory plan- ER only makes
basis, except when they are not expected to be
contributions to the retirement benefit plan.
settled wholly within 12 mos. After the end of
Funded plan- entity sets aside funds for future
the period.
retirement benefits by making payments to a
ACCOUNTING PROCEDURES
funding agency such as trustee, bank or
a) Contribution- as expense in the period
insurance company. Funding agency is
it is payable
responsible for accumulation of funds and for
b) Any unpaid contribution at the end of
making payments to retired EE when benefits
the period shall be recognized as
become due.
accrued expense
Unfunded plan- entity retains the obligation for
c) Any excess contribution- as prepaid
the payment of retirement benefits without
expense but only to the extent that the
establishment of a separate fund.
prepayment will lead to a reduction in
future payments or a cash refund.
DEFINED CONTRIBUTION PLAN
DISCLOSURES
-under which an entity pays fixed contributions
a) The amount recognized as expense for
into a separate entity known as fund.
the DCP
-entity makes a specific or definite amount of
b) The contribution to DCP for key
contribution to a separate fund without
Management as required by PAS 24 on
specifying the retirement benefit to be received
related party disclosures
by the employee.
-Contribution is definite, benefit is indefinite.
DEFINED BENEFIT PLAN
- An entity’s obligation is to provide the
agreed benefits to employee.
- EE is guaranteed specific of definite
amount of benefit which is usually
related to his salary and years of
service.
- Benefit is definite, but contributions id
indefinite.
- Entity assumes the investment risk
- If the plan is exceptionally good, entity
may take contribution holiday, meaning
stop paying the contribution for a while
If plan is poor, Entity must make
additional contributions for any
expected shortfall in order to satisfy the
promised future benefits
- R.A 7641
Multiemployer plan
- DCP or DBP that pools the assets
contributed by various entities that are
not under common control and uses
those assets to provide benefits to EE of
more than one entity
Insured benefits
-DCP- an entity may pay insurance premium to
fund a postemployment benefit plan
DBP- the entity has a legal or constructive
obligation:
a) To pay the employee benefits directly
when they fall due
b) To pay further amounts if the insurer
does not pay all future employee
benefits relating to employee service in
the current and future periods.
When an insurance policy is in the name of a
specified plan participant or a group of
participants and the entity does not have legal
or constructive obligation to cover any loss on
the policy, the entity has no obligation to pay
benefits and the insurer has sole responsibility
for paying benefits.
Payment of fixed premium under the insurance
contract is in substance the settlement of the
employee benefit obligation, rather than an
investment to meet the obligation.
Consequently, the entity no longer has an asset
or liability. Such insurance payments shall be
treated as contribution to a defined
contribution plan.
ACCOUNTING FOR DEFINED CONTRIBUTION
PLAN
-straightforward because the obligation of the
entity is determined by the amount contributed
for each period.
-No actuarial assumptions to measure the
contribution and NO possibility of any actuarial
gain or loss.
-Obligations are measured on an undiscounted
basis, except when they are not expected to be
settled wholly within 12mos. After the end of
the period.
ACCOUNTING PROCEDURES
a) Contribution> expense in the period it is
payable
b) Any unpaid contribution at the end of
the period> accrued expense
c) Any excess contribution > prepaid
expense only to the extent that
prepayment will lead to a reduction in
future payments or cash refund.
DISCLOSURES- DCP
a) Amount recognized as expense for the
DCP
b) Contribution to DCP for key
management personnel required by
PAS24 on related party disclosures.
ACCOUNTING FOR DEFINED BENEFIT PLAN
-complex due to actuarial assumptions which
requires to measure the obligation and the
expense and there is a possibility of actuarial
gains and losses.
-measured on discounted basis
-may be unfunded, fully or partly, by the
contributions of the entity
-expense recognized is not necessarily the
amount of the contribution for the period.
 COMPONENTS OF DEFINED BENEFIT
COST
1) Service Cost which comprises
a) Current service cost
b) Past service cost
c) Any gain or loss on settlement
2) Net interest:
a) Interest expense on defined
benefit obligation- included in
the computation of DBO at year
end in the memo of trustee
b) Interest income on plan assets-
included in the computation of
the FVPA at year end in the
memo record of the trustee
c) Interest expense on effect of
asset ceiling
Note: Service cost and Interest cost> P/L as
component of Employee benefit expense
3) Remeasurements:
a) Remeasurement of plan assets
b) Remeasurement of projected
benefit obligation
c) Remeasurement of the effect of
asset ceiling
Note: ALL of Remeasurements> OCI , not
recycled or reclassified subsequently to P/L,
may be transferred within equity or reclassified
to retained earnings.
Actuarial Valuation Method
Projected unit credit method AKA accrued
benefit method- shall be used in determining
the PV of the DBO and the related current
service cost and where applicable, past service
cost.
-such sees each period of service as giving rise
to an addt’l unit of benefit entitlement and
measures each separately to build up the final
obligation
(a) (b) (a X b)
Year Benefit PV factor PV
PBO
DATE C.service cost Int.Expense PV
Current service cost
- The increase in the PV of DBO resulting
from employee services in the current
period
- The cost is the cost to an entity under a
defined benefit plan for service
rendered by employees in the current
year
- Increases expense and DBO
Past service cost
- Change in the PV of DBO for employee
service in prior periods resulting from a
plan amendment or curtailment.
- RECOGNITION:
- An expense, wheteher vested or
unvested, at the earlier of the ff. dates:
a) When plan amendment and
curtailment occurs
b) When the entity recognizes related
restructuring costs or termination
benefits
Net interest (on defined benefit liability or
asset)
- The change in the DBO, plan assets and
effect of asset ceiling as a result of
passage of time
- A) Interest expense on Defined benefit
liability= DBO Beg. X Discount rate
B) Interest income= FVPA Beg. X
discount rate
c) Interest expense on effect of asset
ceiling= effect of asset ceiling Beg. X
discount rate
- the difference between the interest expense on
DBO, on effect of asset ceiling and interest
income on PA.
Note: Expected return on plan assets is
IGNORED completely.
PLAN ASSETS
-assets held by long-term benefit fund and
qualifying insurance policies of which conditions
are:
a) Assets are held by an entity, the fund itself,
that is legally separate from the reporting entity
b) Assets are available to pay ONLY employee
benefits
c) Assets are not available to the reporting
entity’s own creditors even in bankruptcy
d) Assets cannot be returned to reporting entity
unless if the remaining assets of the fund are
enough to meet all EE benefit obligations or
assets are returned to the reporting entity to
reimburse for EE benefits already paid
RETURN ON PLAN ASSETS
a) Interest, dividend and other income
derived from the plan assets
b) Realized and unrealized gains/losses on
the assets
-below are deducted in computing Return on PA
a) Any costs of managing PA or cost of
managing investments
b) Any tax payable by the plan itself or any tax
on investment income
REMEASUREMENT OF PLAN ASSETS
-accounted for as component of OCI
- Actual return on PA minus the interest income
on the FV of PA Beg. = remeasurement
Actual return on PA> Interest income on FVPA=
remeasurement gain
Actual return on PA< Interest income on FVPA=
remeasurement loss
COMPONENTS OF FVPA
a) Contribution to the fund
b) Interest Income on plan assets
c) Remeasurement gain or loss on PA
d) Benefits paid upon retirement
e) Settlement price of plan settlement
before retirement
 COMPUTATION OF FVPA
FVPA- beg. Xx
Contribution to fund xx
Interest income xx
Remeasurement G/L on PA xx/(xx)
Less: Benefits paid (xx)
FVPA –Ending xx
PROJECTED BENEFIT OBLIGATION
-actuarial PV of all benefits attributed by the
pension benefit formula to EE service rendered
before a specified date based on future
compensation level or future salary increases.
- the defined benefit obligation contemplated
under PAS 19.
-if based on current salary level, it is
accumulated benefit obligation
*Definition of terms
Plan amendment- includes introduction of DBP
or changes to an existing DBP
Plan curtailment- significant reduction by the
entity in the no. of employees covered by the
DBP. Thus may arise from: closing of plant,
discontinuance of an operation and termination
or suspension of a plan
Experience adjustments- results from the
differences between the previous actuarial
assumptions and what has actually occurred,
arise because actual events inevitably differ
from actuarial assumptions.
ACTUARIAL GAINS AND LOSSES
- The changes in the PV of projected
benefit obligation resulting from
experience adjustments and the effects
of changes in actuarial assumptions
Actuarial assumptions
-entity’s best estimate of the variables that
determines the ultimate cost of providing
postemployment benefits
-unbiased if they are neither imprudent nor
excessively conservative
 - mutually compatible if they reflect the a) FVPA- source of fund set aside in meeting
economic relationships between factors future benefit payments
such as inflation rates of salary increase, b) PBO- PV of expected future payments
RPA and discount rate. required to settle the obligation arising from the
-demographic assumptions and financial employee service in the current and prior
assumptions periods.
-discount rate – market yield at the end of 
reporting period on high quality bonds, if DR balance- FVPA
there is no such, then gov’t bonds. CR balance- PBO
PBO is measured on the reflection of
estimated future salary increases FVPA> PBO= plan overfunded, prepaid benefit
cost ( noncurrent asset)
CAUSES OF ACTUARIAL FVPA< PBO= plan underfunded, accrued benefit
-a) Unexpected high or low rate of EE cost ( noncurrent liability)
turnover, early retirement or mortality and
increase in salary
b) Change in assumptions concerning Prepaid/ Accrued benefit cost is balancing figure
benefit payment options
c) Change in discount rate COMPUTATIONS
- Actuarial gains or losses DO NOT include in
the PV of PBO arising from intro, FVPA xx
amendment, curtailment or settlement of PBO xx
the benefit plan->>>such changes results in Prepaid/Accrued Benefit cost xx
past service cost or gain or loss on plan
settlement. Current service cost xx
Any gain/ loss on settlement (xx)/xx
REMEASUREMENT OF PBO Past service cost xx
Actual benefit obligation > estimated Interest expense PBO xx
amount = actuarial loss Interest expense asset ceiling xx
Pbo has increased Interest income FVPA (xx)
Actual benefit obligation < estimated Employee Benefit expense xx
amount = actuarial gain
Pbo has decreased Actual return on plan assets xx
Interest income FVPA (xx)
DEFINED BENEFIT PLAN Remeasurement gain/loss on PA xx(xx)
*Actuarial loss due to PBO INC. (xx)xx
Basic Accounting Procedure Net remeasurement loss/gain (xx)xx
Benefit plan- viewed as subentity separate and
distinct from the primary entity, aka ER entity Employee Benefit expense xx
Subentity- maintains info that DOES NOT Net remeasurement loss/gain xx(xx)
appear in the FS of primary entity and is kept by TOTAL DEFINED BENEFIT COST xx
means of MEMORANDUM RECORDS and not Contribution to plan (xx)
reflected in the general ledger accounts. Accrued/ Prepaid Benefit cost xx
-contains the following: During the year
 - Fully recognized and included in service
Accrued/ Prepaid Benefit cost-Jan 1 (xx)xx cost in the computation of employee
CR/ DR adjustment-Accrued/Prepaid (xx)xx benefit expense
Benefit cost during the year Settlement price- includes any plan assets
Accrued/ Prepaid Benefit cost- Dec 31 (xx)xx transferred and any payments made directly by
the entity in connection with the settlement.
RECONCILIATION
FVPA-Jan 1 XX SP < PV DBO= Settlement Gain
Contribution to plan xx SP> PV DBO = Settlement loss
Actual return on PA xx
Remeasurement gain PA xx Surplus in a defined benefit plan must not
(**Interest Income FVPA ) xx exceed the asset ceiling determined by using
Settlement price DBO (xx) the discount rate in the measurement of the
Benefits paid (xx) defined benefit obligation.
FVPA- Dec 31 xx
Asset ceiling-the PV of any economice benefits
PBO- Jan 1 xx available in the form of refunds from the plan or
Current service cost xx reductions in future contributions to the plan.
Past service cost xx
Interest expense PBO xx Any change in the effect of asset ceiling
Benefits paid (xx) excluding interest on the effect of the asset
PV of DBO settled (xx) ceiling is a remeasurement-OCI
Actuarial loss PBO increase xx  Effect of asset ceiling x discount rate =
PBO- Dec 31 xx interest on the effect of the asset ceiling
Increase in EoAC= remeasurement loss−
FVPA- Dec 31 xx interest expense on EoAC
PBO- Dec 31 (xx) Decrease in EoAC= remeasurement gain+
Prepaid/ Accrued benefit cost xx interest expense on EoAC

Effect of asset ceiling Jan 1 xx

Settlement of plan- a transaction that Effect of asset ceiling Dec 31 xx
eliminates all further legal or constructive Total change in the effect xx
obligations for part or all of the benefits of asset ceiling
provided under a defined benefit plan. Interest expense on EoAC (xx)
-a lumpsum payment to plan participants in Remeasurement LOSS on xx
exchange for their rights to receive specified asset ceiling
postemployment but lumpsum payment made
under the terms of the existing defined benefit EoAC > credit in memo record>same
plan is not a settlement category as PBO
Portion attributable to the interest expense
Gain or loss on settlement on EoAC is included in P/L as component of
-recognized when settlement occurs employee benefit expense.
-=settlement price−¿PV of the defined benefit The remainder is a remeasurement-OCI.
obligation on the date of settlement
Remeasurement gain on PA xx
Actuarial gain decrease in PBO xx
Remeasurement loss on (xx)
The change in the EoAC
Net remeasurement gain-OCI xx
PAS 19- application is retrospectively
Any transitional effect of the application of
the amendment under PAS19 shall be
accounted for as adjustment of the beg.
Balance of retained earnings like the
unamortized past service cost and the
unrecognized actuarial loss which will be
eliminated and accounted for
retrospectively.
Carrying amount of assets need not to be
adjust for changes in employee benefit
costs that were included in the initial CA of
the assets. Inventory and PPE that include
employee benefit costs in their CA do not
have to be restated.
All actuarial gains and losses during the year
are fully recognized in OCI.
DISCLOSURES- Defined benefit plan
a) Characteristics of the DBP and risks
associated with the plan
b) Reconciliations for the FVPA and the PV
of DBO
c) Separate showing of current service
cost, past service cost, interest expense
or income and remeasurements.
d) Disaggregation of the FVPA into classes
that distinguish the nature and risks of
assets.
e) A sensitivity analysis for each
siginificant actuarial assumption
showing the effect on the DBO for any
change
f) Description of any funding arrangement
and policy
g) Expected contribution to the plan for
the next period
h) Maturity profile of the defined benefit
obligation.
A retirement benefit plan may contain
characteristics of both defined contribution plan
and DBP, such a hybrid plan is deemed to be a
DBP.
Report of defined contribution plan
-contains a statement of net assets available for
benefits and a description of the funding policy.
-plan investments shall be carried at FV.
Report of defined benefit plan
-shall contain either:
A statement that shows the net assets available
for benefits, the actuarial PV of promised
benefits distinguishing between vested and
novested benefits and the resulting excess or
deficit.
A statement of net assets available for benefits,
including either a note disclosing the actuarial
PV promised vested and nonvested benefits or
a reference to this info in an accompanying
actuarial report.
FREQUENCY OF ACTUARIAL VALUATION
-not incumbent
-IF ACTUARIAL Valuation has not been prepared
on the date of the report the most recent
valuation is used and the date of actuarial
valuation is disclosed.
DISCLOSURE
(retirement plan, defined contribution and
defined benefit):
a) Statement of changes in net assets
available for benefits
b) Summary of significant accounting
policies
c) Description of the plan and the effect
of any changes in the plan during the
period.