Jerald Jay C.

Catacutan Intermediate Accounting

BSA-2B

Learning Resource 12: Accounting for Employee Benefits

Lesson 3: OTHER EMPLOYEE BENEFITS

A. Theoretical Exercises (Individual Task)

Choose the correct answer by writing the corresponding letter-answer and a convincing
justification that it is indeed the correct answer via applicable appropriate accounting principles
discussed in Activity 1.

1. Short-term employee benefits include all, except

a. Wages, salaries and social security contributions.
b. Short-term compensated absences.
c. Profit-sharing bonus payable in more than twelve months after the end of reporting period.
d. Nonmonetary benefits, such as medical care, housing, car and free and subsidized goods.
Answer: C
Short-term employee benefits include the following:
a. salaries, wages and social security contributions
b. short term compensated or paid absences such as paid annual leave and paid sick leave
c. profit sharing and bonuses payable within twelve months
d. nonmonetary benefits, such as medical care, housing, car, and free or subsidized goods.

2. Short-term employee benefits are described by all, except

a. No actuarial assumptions are required.
b. There is no possibility of any actuarial gain or loss.
c. Short-term employee benefits by definition are payable no later than twelve months after
year-end.
d. Short-term employee benefit obligations are measured on a discount basis.
Answer: D
There is no possibility of actuarial gain or loss because short term employee benefits are
measured on an undiscounted basis.

3. These are compensated or paid absences that are carried forward and can be used in future
period and the employees are entitled to a cash payment for unused entitlement on leaving the
entity.
a. Accumulating and vesting c. Nonaccumulating and vesting
b. Accumulating and nonvesting d. Nonaccumulating and nonvesting
Answer: A
Accumulating paid absences are those that are carried forward and can be used in future
periods if the current period’s entitlement is not used in full and vesting meaning employees
are entitled to a cash payment for unused entitlement is not used in full.

4. Which is the following criteria is not required for the recognition of a liability for compensated
absences?
a. The amount of the obligation must be estimable
b. Payment of the obligation must be probable
c. Payment of the obligation will require the use of current assets.
d. The compensation either vest with the employee or can be carried forward to subsequent
years.
Answer: C

5. These are employee benefits that are payable as a result of an employee’s decision accept
an offer of benefits in exchange for termination of employment.
a. Termination benefits c. Other long-term employee benefits
b. Short-term employee benefits d. Postemployment employee benefits
Answer: A
Termination benefits are employee benefits provided in exchange for the termination of an
employee’s employment as a result of either:
a. an entity’s decision to terminate an employee’s employment before the normal retirement
date.
b. an employer’s decision to accept an offer of benefits in exchange for the termination of an
employment.

6. Employees are each entitled to 20 days of paid holiday leave per year. Unused holiday leave
cannot be carried forward and does not vest. What is the holiday leave?
a. Short-term employee benefit c. Other long-term employee benefits
b. Postemployment benefits d. Termination benefit

Answer: A
Short term employee benefits are employee benefits other than termination benefits which
are expected to be settled wholly within twelve months after the end of annual reporting
period in which the employees render the related service.

7. Employees are entitled to 10 days holiday leave per year. Unused holiday leave may be
carried forward until the employee leaves the employment of the entity, at which time the entity
will pay the employee for all unused holiday leave. What is the holiday leave?
a. Short-term employee benefit c. Other long-term employee benefits
b. Postemployment benefit d. Termination benefit
Answer: C
Other long term benefits are employee benefits which are not expected to be settled wholly
within twelve months after the end of annual reporting period in which the employee render
the related service.

8. An entity made a public announcement of a commitment to a voluntary redundancy plan. The

entity has an obligation to pay employees that choose voluntary redundancy a lump sum equal
to twice their gross annual salary. What is the obligation to pay employees that choose
voluntary redundancy?
a. Short-term employee benefit c. Other long-term employee benefit
b. Postemployment benefit d. Termination benefit
Answer: D
Termination benefits are usually lump sum payment but sometimes also include:
a. enhancement of postemployment benefits, either directly or indirectly through an employee
benefit plan.
 b. salary until the end of a specified period if the employee renders no further service that
provides economic benefits to the entity.

9. A profit-sharing plan requires an entity to pay a specified proportion of the cumulative profit
for a five-year period to employees who serve throughout the five year period. What is the profit-
sharing plan?
a. Short-term employee benefit c. Other long-term employee benefit
b. Postemployment benefit d. Termination benefit
Answer: C

10. What is the compensated absences?

a. Unpaid time off c. Payroll deductions
b. A form of healthcare d. Paid time off
Answer: D
Compensated absences are absences for which employees will be paid, such as vacation,
sick leave, and sabbatical leave. Thus, employees earn the right to be compensated for
vacation leave based only on rendering past service. On the other hand, paid time off or as a
compensation at termination or retirement.

11. A liability for paid absences should

a. Be accrued during the period when the compensated time is expected to be used by
employees.
b. Be accrued during the period following vesting.
c. Be accrued during the period when earned.
d. Not be accrued unless a written contractual obligation.
Answer: C

12. The amount of liability for paid absences should be based on

a. The current rate of pay in effect when employees earn the right to compensated absences.
b. The expected rate of pay expected to be paid when employees used compensated time.
c. The present value of the amount expected to be paid in future periods.
d. Either the current rate of pay in effect when the employees earn the right to compensated
absences or the expected rate of pay expected to be paid when employee use compensated
time.
Answer: D

13. If the payment of employees’ compensation for future absences is probable, the amount can
be reasonably estimated and the obligation relates to rights that accumulated, the compensation
should be
a. Accrued if attributable to employees’ services not yet rendered.
b. Accrued if attributable to employees’ services already rendered.
c. Accrued if attributable to employees’ services whether already rendered or not.
d. Recognized when paid.

Answer: B
An employer should accrue liability for compensated absences payable to employees for their
future absences, but only if all the following conditions are met:
a. the payment obligation for future absences is based on employee services already
rendered.
b. the amount of the obligation can be reasonably estimated
c. payment is probable
d. the obligation is for employee rights that vest or accumulate.

14. In determining whether to accrue employees’ compensation for future absences, one of the
conditions that must be met is that the employer has no obligation to make payment even if an
employee terminates. This is an example of what?
a. Accumulated right b. Estimable right c. Contingent right d. Vested right
Answer: D

15. In accounting for paid absences, the difference between vested rights and accumulated right
is
a. Vested right are normally for a longer period of employment than accumulated rights.
b. Vested right are not contingent upon an employees’ future service.
c. Vested right are a legal and binding obligation whereas accumulated rights expire at year-
end.
d. Vested right carry a stipulated account whereas accumulated rights are nonmomentary.
Answer: B
In accounting for compensated absences, the difference between vested rights and
accumulated rights is that: vested rights are a legal and binding obligation in the company,
whereas accumulated rights expire at the end of the accounting period in which they arose.
vested rights are normally for a longer period of employment than are accumulated rights.
Accumulated rights do not represent monetary compensation.

16. An employer offered special termination benefits. The employees accepted the offer which
provided for immediate lump sum payments and future payments at the end of the next two
years. The amount expense recognized in the current year should include
a. The total of lump sum and future payments.
b. One third of the lump sum payments and one third of the present value of the future
payments
c. Only the lump sum payments
d. The lump sum payments and the present value of the future payments
Answer: D

17. What is the requirement for the accrual of sick pay?

a. Sick pay benefits can be reliably estimated.
b. Sick pay benefit vest.
c. Sick pay benefits do not vest.
d. Sick pay benefits accumulate.
Answer: B

II. Individual Task

Solve the following problems with solutions presented in good form; and choose the correct
answer (re: letter-answer) from the given probable answers.

1. AWA Company

1. A
Solution:
Vacation pay expense for 2020 (50 x 15 days x 8hrs x 150) P 900,000

2. B
Solution:
Vacation days earned in 2020, 2021 and 2022 (15 x 3) 45
Vacation days taken in 2021 (13)
Vacation days taken in 2022 (15)
Vacation days not taken (2021 -2, 2022- 15) 17

Vacation days earned in 2021 not taken (2 x P200 x 8 hrs. x 50 employees) P 160,000
Vacation days earned in 2022 not taken (15 x P250 x 8 hrs. x 50 employees) 1,500,000
Accrued liability- December 31, 2022 P 1,660,000

2. AXA Company
1. A
Solution:
Lump sum payments P 475,000
PV of periodic payment 155,000
Total liability P 630,000

2.C
Solution:
The entry to recognize the liability for termination benefits is as follows:
Accrued pension cost P 45,000
Termination benefits 585,000
Liability for termination benefits P 630,000
to record liability for termination

3. AYA Company
1. A
Solution:
Employees leaving before closure (150 x 20,000) P 3,000,000
 Employees leaving until closure ( 50 x 60,000) 3,000,000
Total benefit P 6,000,000

2. A
Solution:
Termination Benefit (200 x 20,000) P 4,000,000

3. A
Solution:
Total benefit per employee P 60,000
Termination benefit 20,000
Short term benefit per employee 40,000
Number of employees leaving until closure 50
Total amount of short term benefit P 2,000,000

4. AZA Company
1.A
Solution:
Employees leaving before closure (130 x 30,000) P 3,900,000
Employees leaving until closure (20 x 80,000) 1,600,000
Total benefit P 5,500,000
2.C
Solution:
Termination benefit (150 x 30,000) P 4,500,000
3.B
Solution:
Total benefit per employee P 80,000
Termination benefit ( 30,000)
Short term benefit per employee 50,000
Multiply by the number of employees leaving until closure 20
Total amount of short term benefit P 1,000,000