IAS 19: EMPLOYEE BENEFITS that the entity expects to pay as a result of the

accumulated unused entitlement

EMPLOYEE BENEFITS – all forms of consideration given - The amount of liability at year-end shall be measured at
by an entity in exchange for service rendered by employees or the best estimate of the obligation, based on services
for termination of employment. already rendered

FOUR CATEGORIES OF EMPLOYEE BENEFITS Two types:

1. Short-term employee benefits 1. Vesting
- Expected to be settled wholly before 12 months after the - Employee is entitled to receive the benefit at the date he
end of the annual reporting period in which the leaves the company (upon retirement)
employees render the related service - Ex. unused sick leave is accumulated and paid to the
- Wages, salaries, SSS contributions, paid annual leave, employee at the date of his retirement from the company
compensated absences (sick leave and vacation leave), - Any unclaimed entitlement on account of current period
profit sharing and bonuses payable services shall increase the amount of the entity’s
- Medical care, housing, cars and free or subsidized obligation
goods or services for current employees - The year-end obligation shall be measured and re-
measured based on the rate expected to apply when the
2. Post-employment benefits employee claims the entitlement
- Payable after the completion of employment (other than
termination benefits and short-term benefits) 2. Non-vesting
- Pensions, lump-sum payments on retirement, post- - Employees are not entitled to a cash payment for unused
employment life insurance, and post-employment entitlement at the date he leaves his employer (upon
medical care retirement)
- The cost of unclaimed benefits is measured at year-end
3. Other long-term employee benefits taking into consideration the benefits that the employees
- All employee benefits other than short-term employee will most likely claim on availment period
benefits, post-employment benefits, and termination - Last-in First-out (LIFO) Approach  Generally used
benefits to measure the obligation under non-vesting
- Long-service leave, sabbatical leave, jubilee or other
long-service benefits, long-term stability benefits LIFO Approach
Estimated number of days
4. Termination benefits that the employee will avail
- Employee benefits provided in exchange for the during the subsequent
periods Expensed next period
termination of an employee’s employment
- Results from either an entity’s decision to terminate an Excess of annual Liability
employee before normal retirement date entitlement
- Employee’s decision to accept an offer of benefits in
exchange for the termination of employment Computation of Compensated Absences
Ave. additional entitlement for compensated XXX
SHORT-TERM EMPLOYEE BENEFITS absences in excess of prior year entitlement
Recognition and Measurement Multiply: No. of employees expected to avail XXX
- Recognized as an expense in the reporting period excess additional entitlement
wherein the employee has rendered service Total equivalent number of days XXX
- Unpaid amount  recognized as a liability at the Average rate per day PXX
undiscounted amount X
LIABILITY FOR COMPENSATED XXX
Journal Entry ABSENCES
Compensation Expense xxx
Accrued liability/Cash xxx Journal Entry
To record accrual (prior year)
Compensated Balances Compensated Absences xxx
- Paid leaves Liability for Compensated Absences xxx
- Includes annual leave and paid sick leave *Liability for Compensated Absences  Current Liability
- Absences are expected to occur within 12 months after
the end of the period Reversal at the beginning of year
- May be accumulating or non-accumulating Liability for Compensated Absences xxx
Compensated Absences xxx

Actual payment of compensated absences

Compensated Absences xxx
Accumulating Short-term Employee Benefits Cash xxx
- Unused absences can be carried forward to future
periods if the current period’s entitlement is not used in Record estimate of year-end obligation
full Compensated Absences xxx
- Cost is recognized as an expense when the employees Liability for Compensated Absences xxx
render service that increases their entitlement to future
compensated balances - Difference between the amount set up as liability in the
- The expected cost of accumulating compensated prior period and the actual payment in the current period
absences shall be measured at the additional amount is considered as a change in accounting period
 Total Accumulated Fund XX
Non-accumulating Short-term Employee Benefits X
- Do not carry forward and do not require accrual at year-
end - Actual risk and investment risk fall on the
- Entity recognizes cost of non-accumulating compensated employee
absences when the absences occur as expenses
2. Defined Benefit Plans
POST-EMPLOYMENT BENEFITS - Plans that define the benefits that employees will
- Payable after the completion of employment rather than receive at retirement
termination benefits and short-term benefits - It is necessary for the employer to determine what
- Retirement benefits plans/Pension plans the contribution should be to meet the future
benefit requirements
Classification: - Entity’s obligation is to provide the periodic
A. Contributory Plans and Non-contributory contribution for the benefits of its current and
1. Contributory former employees
- Both employer and the employee are required to - Actuarial Risk and Investment Risk fall on the
make contributions to the fund assets employer
- Made through salary deduction
- SSS and GSIS plans (both employer and employee Accounting for Defined Contribution Plans
make periodic contributions)

2. Non-contributory
- Employee is not required to make contributions for
his retirement benefits
- Only the employer shoulders the cos of the
employee’s retirement benefits

B. Funded Plans and Unfunded Plans

1. Funded
- A trustee is designated to administer the resources - Employer records an expense and a related liability for
accumulated in the fund the agreed upon contribution
- Trustee  independent entity which manages the
fund resources. Pays the employees on due date - Payments are charged against the liability
after they are separated from their employers.
- Manager is relieved of the financial obligation after
making the required contribution to the fund Actual Contribution < Required Contribution
- Obligation is transferred to the funding agency or Post-Employment Benefit Expense xxx
trustee Cash xxx
- SSS agency, GSIS agency Accrued Post-Employment Benefit Expense xxx
*Post-Employment Benefit Expense  OPEX; OCI
2. Unfunded *Accrued Benefit Expense  CL
- Employer retains the right to manage the fund for - Accrued Benefit Expense will increase the entity’s
the retirement benefits of the employees required contribution in the succeeding periods
- Employer retains the obligation to pay the
employees their post-employment benefits Actual Contribution > Required Contribution
- Entity maintains a separate fund for payment of Post-Employment Benefit Expense xxx
benefit but retains right and obligations to these  Prepaid Post-Employment Benefit Expense xxx
Unfunded Cash xxx
*Prepaid Benefit Expense  CA
C. Defined Contribution Plans and Defined Benefit
Plans - Prepaid Benefit Expense will decrease the entity’s
1. Defined Contribution Plans required contribution in the succeeding periods
- Post-employment benefit plans that specify the
employer’s contribution based on a formula that
includes such factors such as age, length of service, Accounting for Defined Benefit Plans
employer’s profit, and compensation levels
- Employer’s legal or constructive obligation is
limited to the amount that it agrees to contribute to
the fund
- The amount of the benefits that will be received by
the employee is determined by the amount
accumulated in the fund

Accumulated Fund
Total entity contributions XX
X
Employee contributions XX
X - Employer has to estimate in advance the amount of
Fund earnings XX periodic contribution to the plan that will accumulate
X enough funds for future retirement of its employees
- Actuarial assumptions  required to measure the
obligation for post-employment benefits Computation of Defined Benefit Obligation:
- The obligation is measured on a discounted basis and 2020 2021 2022
actuarial gains and losses may occur
Opening -- 130,608 274,284
- IAS 19 says than an entity shall recognize the following obligation
components of the defined benefit cost: Interest -- 6,530 13,716
1. Service Cost (P/L) Cost (5%)
- Current service cost Current 130,608 137,146 144,000
- Past service cost Service
- Gain/loss on settlement Cost
2. Net Interest (P/L) 130,608 274,284 432,000
- Interest expense on defined benefit obligation
(DBO) Current Service Cost
- Interest income on Plan Assets (PA) - The increase in the PV of the DBO resulting from
- Interest expense on effect of asset ceiling employee service in the current period
3. Remeasurement OCI - This is the cost to the entity under a DBP for services
- Remeasurement of Plan Asset rendered by employees in the current year
- Remeasurement of Project Benefit Obligation - Increases expense and DBO
(PBO) - Measured at the end of each year
- Remeasurement on the effect of assert ceiling
Interest Cost
Project Unit Credit Method - Increase in the present value of the defined benefit
- Actuarial valuation method to determine the PV of the obligation that arises because the benefits payable is one
DBO, Current Service Cost, and Past Service Cost (if year closer to the settlement of the scheme
any)
- Measures each unit separately to build the final Net Interest
obligation (Defined Benefit Obligation) - The net interest on DBO or PA is the change in the
- Actuarial assumption is needed (employee turnover, DBO, PA, and effect of asset ceiling as a result of the
mortality, expected increase in salary, etc.) passage of time
- 3 elements:
ILLUSTRATION 1. Interest expense on DBO (DR % x DBO, beg)
A director of ABC Company receives a retirement benefit 2. Interest expense on PA (DR % x PA, beg)
of 10% of their final salary per annum for a contractual 3. Interest expense on effect of asset ceiling (DR % x
period of 3 years. The director does not contribute to the effect of asset ceiling)
scheme.
Past Service Cost
- Change in the PV of the DBO for employee service in
The anticipated salary of the director over 3 years is
P1,000,000 for 2020, P1,200,000 for 2021, and P1,440,000 the prior period
for 2022. - Can be: Positive  Benefits are introduced or improved;
or Negative  Benefits are reduced
- Results from plan amendment or curtailment
The discount rate is 5%. The PV factor of P1 at 5% for 1 o Plan Amendment: Is the introduction of DBP or
period - 0.9524; 2 periods - 0.9070; and 3 periods - 0.8638
changes to an existing DBP
o Plan Curtailment: The significant reduction of the
Requirement: Using the Projected Unit Credit Method, entity in the number of employees covered by the
determine: DBP due to:
1. Closing of plant
1. Current Service Cost - 2020, 2021, and 2022 2. Discontinuance of an operation
2. Defined Benefit Obligation - 2020, 2021, and 2022 3. Termination/Suspension of a plan

IAS 9 provides PSC be recognized at the earlier of:

Solution:
1. When the plan amendment or curtailment occurs
Final salary of director 1,440,000 2. When the entity recognizes related restructuring costs
10% or termination benefits
Annual retirement benefit = 144,000
- All PSC shall be recognized as expense immediately
Year 1 Year 2 Year 3
PLAN ASSETS
Prior Year 0 144,000 288,000 - Measured at Fair Value
Current Year 144,000 144,000 144,000 - Assets held by a long-term benefit fund (called trustee)
Total 144,000 288,000 432,000 and qualifying insurance policies
- Fund set aside for the payment of retirement benefits
Computation of Current Service Cost: - Conditions for assets held by a long-term benefit fund
Year Benefit PV Factor PV are:
2020 144,000 0.9070 130,608 1. Assets are held by an entity, the fund itself, that is
2021 144,000 0.9524 137,146 legally separate from the reporting entity
2022 144,000 1.0000 144,000 2. The assets are available to pay only employee
=411,754 benefits
 3. The assets are not available to the reporting entity’s Gain: (-) in BDO
own creditors even in bankruptcy Actual < Estimate
4. Assets cannot be returned to the reporting entity or ENDING BALANCE XXX
can be returned if the assets are sufficient to meet
obligations or the reporting entity is to reimburse it
for benefits already paid
Remeasurement of DBO
- Not resources available to the employer. Only for the
- Component of OCI
benefits of the employees only.
DBO, beg
Return on PA + Current Service
- Includes: Remeasured - Cost = Actuarial
o Interest, dividends, other income derived from the DBO, end + Interest Cost Gain or
PA + Past Service Loss
o Realized and unrealized gains or losses on the PA Cost, if any
- Benefits paid
- Deducts:
o Cost of managing the PA or managing investments
Actuarial Actual benefit obligation > Estimated
o Taxes
loss
Actuarial Actual benefit obligation < Estimated
Fair Value of Plan Asset gain
Beg. Balance XXX
Benefits Paid (XXX Amount paid  The PA and DBO do not appear in the books of the
) to employees entity but rather in memorandum records only of the
Actuarial Gain/Loss -/+ plan (an entity separate from the employer)
XXX
Settlement Price of PA before (XXX  Prepaid or Accrued Benefit Cost
retirement ) - The only account that appears in the financial
Interest Income XXX statement of the employer
Contributions during the period XXX Amount - Overfunded (NCA) if it has debit balance
transferred (FVPA > PBO)
to the - Underfunded (NCL) credit balance (FVPA <
funding PBO)
agency
Ending Balance XXX SUMMARY
Defined Benefit Cost Benefit Liability
(Asset)
Remeasurement of PA Remeasur Retirement
- Component of OCI ement to Benefit
OCI Expense FVPA DBO
Remeasured PA, beg Actuarial Beg Bal XXX XXX
PA, end + Return Gain or
- + Contributions = Current XXX XXX
Loss Service
- Benefits Paid
Cost
Past XXX XXX
Remeasurement Gain Actual return > Interest
Service
Income on FV of PA
Cost
Remeasurement Loss Actual return < Interest
Interest XXX XXX
Income on FV of PA
Cost
Interest (XXX) XXX
Revenue
DEFINED BENEFIT OBLIGATION (DBO)
- Present value of expected future payments to employees Benefits (XXX (XXX)
Paid )
on account of the current and future periods
Contributio XXX
Components of Defined Benefit Obligation ns to PA
Beg. Balance XXX Actuarial XXX XXX (XXX)
Gain
Benefits paid (XXX Actuarial (XXX) (XXX XXX
) Loss )
Interest expense XXX Disc % x BDO, beg End Bal XXX XXX XXX XXX
Current Service Cost XXX Increase in PV of XXX XXX
DBO due to employee Accrual of benefit cost Ending balance of
service in the current Defined Benefit
period Liab/Asset
Past Service Cost XXX Increase in PV of
DBO due to plan Journal Entries
amendment or Retirement Benefit Expense XXX
curtailment Remeasurement of DBL/A – OCI XXX
Actuarial Gain/Loss -/+ Loss: (+) in BDO Defined Benefit Liability/Asset XXX
XXX Actual > Estimate
Defined Benefit Liability/Asset XXX
Cash XXX
Defined Benefit Liability/Asset
Beg bal (PA, beg – DBO, beg) XXX
Accrual of Benefit Cost XXX
Contributions (XXX)
Ending Balance XXX

FINANCIAL STATEMENT PRESENTATION

 Retirement Benefit Expense – P/L
 Re-measurement of Defined Liab/Assets – OCI
 Defined Benefit Liab/Asset – SFP
 Cumulative balance of Re-measurement of Defined
Benefit Liability – SHE

RECOVERABILITY OF THE RESULTING ASSET

(SURPLUS)
- Re-measurement of Net Defined Benefit Asset is
allocated to:
a) Profit or Loss – to the extent of interest cost on the
difference between surplus, beg and asset ceiling,
beg
b) OCI – for the remainder of the adjustment

Plan Assets, end XXX

Defined Benefit Obligation, end (XXX)
SURPLUS XXX
Asset Ceiling, end (XXX)
Excess of Surplus over AC, end XXX
Excess of Surplus over AC, beg (XXX)
Adjustment to Defined Benefit Asset XXX

Allocation of Adjustment to DBA:

To Profit or Loss:
Adjustment to Interest XXX
(DR % - (excess of surplus over AC, beg))
To OCI:
Remainder XXX
Total Adjustment to Defined Benefit Asset XXX

OTHER LONG-TERM EMPLOYEE BENEFITS

1. Long-term paid absences, long-service sabbatical leave
2. Jubilee or other long-service benefit
3. Long-term disability benefits
4. Profit-sharing and bonuses payable twelve months or
more after the end of the period
5. Deferred remunerations

- Follows same principles for retirement benefits under the

defined benefit plans
- However, no part of re-measurement shall be taken to
other comprehensive income
- Liability for OLTEB:
o Excess of PV of DBO over the FVPA as at the end
of the period

TERMINATION BENEFITS
- Employee benefits payable as a result of either:
1. Termination of employment
2. Employee’s decision to accept an entity’s offer of
benefits in exchange of termination

- Recognized a liability and expense at the following

dates, whichever is earlier:
1. Entity can no longer withdraw the offer of those
benefits
2. Entity recognizes costs for restructuring and
involves payment of termination benefits

- If termination benefits are an enhancement to post-

employment benefits  apply principles for Post-
Employment Benefits