Employee Benefits

Under the revised PAS 18, employee benefits are all forms of consideration given by an entity in
exchange for services rendered by employees or for the termination of employment

Postemployment Benefits

Employee benefits other than termination benefits and short-term employee benefits, which are
payable after completion of employment.

a. Retirement benefits, such as pensions and lump sum payments on retirement

b. Postemployment life insurance

c. Postemployment medical care

Short-term Employee Benefits

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.

a. Salaries, wages, and SSS 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.

Other Long-term Employee Benefits

Employee benefits other than short-term, post employment and termination benefits.

a. Long-term paid absences such as long service or sabbatical leave

b. Jubilee or other long service benefit

c. Long-term disability benefits

d. Profit sharing and bonus

e. Deferred compensation
Termination Benefits

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 employee’s decision to accept an offer of benefits in exchange for the termination of

employment

ACCOUNTING FOR DEFINED BENEFIT PLAN

COMPONENTS OF DEFINED BENEFIT COST

Profit / Loss

1. Service Cost

a. Current service cost

b. Past service cost

c. Any gain or loss on settlement

2. Net interest

a. Interest expense on defined benefit liability

b. Interest income on plan assets

Other Comprehensive Income

3. Remeasurements

a. Actuarial gain and loss

b. Actual return on plan assets less interest income on plan assets

c. Any change in the asset ceiling

Note: The projected unit credit method, sometimes known as accrued benefit method, shall be used
in determining the present value of the defined benefit obligation and the related current service and
where applicable, past service cost.

CURRENT SERVICE COST

The increase in the present value of the defined benefit obligation resulting from employee
service in the current period.
PAST SERVICE COST

The change in the present value of defined benefit obligation for employee service in prior periods
resulting from a plan amendment or curtailment.

Note: All past service cost, whether vested or unvested, shall be recognized as an expense immediately
at the earlier of the following dates:

a. When the plan amendment or curtailment occurs.

b. When the entity recognizes related restructuring costs or termination benefits.

GAIN OR LOSS ON SETTELEMENT

The difference between the settlement price and the present value of the defined benefit obligation on
the date of settlement.

Note:

The settlement price includes any plan assets transferred and any payments made directly in connection
with the settlement.

Any gain or loss is fully recognized and included in service cost in the computation of employee benefit
expense.

NET INTEREST

The difference between the interest expense on the defined benefit obligation and the interest income
on the plan assets.

Composition:

a. Interest Expense – this is computed by multiplying the defined benefit obligation at the beginning of
the reporting period by the discount rate.

b. Interest Income – this is computed by multiplying the fair value of plan assets at the
beginning of the reporting period by the discount rate.

Note: Under PAS19R, only the discount rate is to be used.

ACTUARIAL GAINS AND LOSSES

Changes in the present value of the defined benefit obligation resulting from experience adjustments
and the effects of changes in actuarial assumptions.

Usual Causes of Actuarial Gains and Losses

a. Unexpected high or low rate of employee turnover, early retirement or mortality and increases in
salary.

b. Change in assumptions concerning benefit payment options.

c. Change in discount rate.

Determination of Actuarial Gains and Losses

Gain: Actual benefit obligation < Estimated Amount

Loss: Actual benefit obligation > Estimated Amount

Note: Actuarial gains and losses shall be recognized immediately in other comprehensive income and
not subsequently reclassified to profit and loss.

RETURN ON PLAN ASSETS

Components of return on plan assets:

a. Interest, dividend and other income derived from the plan assests.

b. Realized and unrealized gains and losses on the plan assets.

Deductions in computing return on plan assets:

a. Any costs of managing the plan assets or costs of managing investments.

Any tax payable by the plan itself or any tax on investment income.

Note:

Plan assets are measured at fair value.

The amount of remeasurement is equal to the actual return on plan assets minus the interest income on
the fair value of the plan assets at the beginning of the reporting period.

Remeasurement is included in other comprehensive income without any subsequent reclassification to

profit or loss.

ASSET CEILING

The maximum amount for prepaid benefit cost.

 It is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.

If the fair value of plan assets is more than the projected benefit obligation, the plan is overfunded and
therefore, there is a prepaid benefit cost which PAS 19R calls it surplus.

Note:

PAS 19R provides that the surplus in a define benefit plan must not exceed the asset ceiling determined
by using the discount rate in the measurement of the defined benefit obligation.

Any change in the effect of the asset ceiling, excluding interest on the effect of the asset ceiling is a
remeasurement to be recognized through other comprehensive income.

The “interest on the effect of the asset ceiling” is part of the total change in the effect of the asset
ceiling and is determined by multiplying the effect of the asset ceiling at the beginning of the period by
the discount rate.

TRANSITIONAL PROVISIONS

PAS 19R requires retrospective application.

Any transitional effect of the application of the amendment under PAS 19R shall be accounted for
asadjustment of the beginning balance of retained earnings.

DISCLOSURES – DEFINED BENEFIT PLAN

1. Characteristics of the defined benefit plan and risks associated with the plan, for example, the nature
of benefits provided and any minimum funding.

2. Reconciliations for the fair value of plan assets, the present value of the defined benefit obligation
and the effect of asset ceiling.

3. Separate showing of current service cost, past service cost, interest expense or income and
remeasurements in the reconciliations.

4. Disaggreagtion of the fair value plan assets into classes that distinguish the nature and risks of assets,

subdividing the plan assets into those that have a quoted market price and those that do not have a
quoted market price.

5. A sensitivity analysis for each significant actuarial assumption showing the effect on the defined
benefit
obligation for any change in the relevant actuarial assumption.

6. Description of any funding arrangement and funding policy.

7. Expected contribution to the plan for the next annual reporting period.

8. Maturity profile of the defined benefit obligation

Fair Value of Plan Assets - Ending

Beginning FVPA

Add:

Contribution to the fund

Interest Income

Remeasurement gain on plan assets

Total

Less:

Benefits paid

Remeasurement loss on plan assets

Ending FVPA

Projected Benefit Obligation – Ending

Beginning PBO

Add:

Current Service Cost

Past Service Cost

Interest Expense

Actuarial loss due to increase in PBO

Total
Less:

Benefits paid

Actuarial gain due to decrease in PBO

Ending PBO