CHAPTER 19: OTHER EMPLOYEE BENEFITS

Short-term Employee Benefits  Any short-term benefits paid in advance

o Shall be recognizes as a prepayment
 Are employee benefits other than termination
 To the extent, that it will lead
benefits
to a reduction in future
o Which are expected to be settled
payments or a cash refund
wholly within 12 months after the end
 The cost of short-term benefits
of the annual reporting period
o Shall be recognized as expense
 In which the employees
 In the period when the
render the related service
economic benefit is given
 Includes the following
 Except:
o Salaries, wages and social security
o When such
contributions
cost may be
o Short-term compensated or paid
included
absences
within the
 Such as
cost of an
 Paid annual leave
asset
 Paid sick leave
 Profit sharing and bonuses payable within 12 Short-term compensated or paid absences
months
 An entity may pay employees for absences for
 Nonmonetary benefits
various reasons
o Such as
o Such as
 Medical care
 Vacation
 Housing
 Sickness
 Car
 Short-term disability
 Free or subsidized goods
 Maternity or paternity
Recognition and Measurement  Military service
 Entitlement to paid absences falls into two
 Accounting for short-term employee benefits
categories:
o Fairly straightforward
o Accumulating absences
 Because there are no
o Non-accumulating absences
actuarial assumptions
 Accumulating paid absences
 No requirement to discount future benefits
o Are those that are carried forward
o Because such benefits are all payable
o Can be used in future periods
no later than 12 months
 If the current period’s
 After the end of the current
entitlement is not used in full
reporting period
o May be either
 No possibility of actuarial gain or loss
 Vesting
o Because short-term employee
 Employees are
benefits are measured on an
entitled to a cash
undiscounted basis
payment for unused
Accounting Procedures entitlement on
(The rules for short-term employee benefits are essentially leaving the entity
an application of basic accounting principles and practice)  Nonvesting
 Employees are not
 Unpaid short-term employee benefits at the
entitled to a cash
end of the accounting period
payment for unused
o Shall be recognized as accrued
entitlement on
expense
leaving the entity
 Non-accumulating paid absences
o Those that are not carried forward
 o Such benefits lapse if the current
period’s entitlement is not used
 Do not entitle the employees
to a cash payment for unused
entitlement on leaving the
entity
o This is commonly the case for
 Sick pay
 Maternity or paternity leave
 Paid absences for military
service
Profit-sharing and bonus plans
 Under some profit sharing plans
o Employees shall receive a share of the
profit
 Only if they remain with the
entity for a specified period
o Such plans create a constructive
obligation
 As employees render service
that increases the amount to
be paid
 If they remain in
service until the end
of the specified
period
o The measurement of such
constructive obligation
 Reflects the possibility that
some employees may leave
without receiving profit-
sharing payments
Recognition and Measurement
(PAS 19 provides that an entity shall recognize the expected
cost of profit-sharing and bonus payment when ALL of the
following conditions are present)
 The entity has a present legal or constructive
obligation
o To make such payment as a result of
past event
 A reliable estimate of the obligation can be
made
A present obligation exists when the entity has no
realistic alternative but to make the payment.
 Any difference between the estimated liability
and actual payment
o Accounted for as change in
accounting estimate
 Included in profit or loss
Other Long-term Employee Benefits
 Residual definition
 All employee benefits other than short-term
employee benefits, postemployment and
termination benefits
 Not expected to be settled wholly within
twelve months after the end of annual
reporting period
o In which the employees render the
related service
Examples of other long-term employee benefits
 Long-term paid absences
o Such as
 Long service
 Sabbatical leave
 Jubilee or other long service benefit
 Long-term disability benefit
 Profit sharing and bonuses
 Deferred compensation
Recognition and Measurement
 The recognition and measurement for other
long-term employee benefits
o Are the same as the recognition and
measurement of defined benefit
obligation
 Liability recognized for other long-term
employee benefits
o Is equal to the excess of PV of the
liability over the FV of the plan assets
 At the end of the reporting
period
 Difference
o Recognition of the components of the
defined benefit cost
 For other long-term employee benefits
o All of the following components of
defined benefit cost are recognized in
profit or loss
 Included in the computation
of employee benefit expense
 Current service cost
 Past service cost
 Any gain or loss on
settlement
 Net interest expense
or net interest income
 Remeasurements
 For defined benefit obligation
these are included in the OCI
Termination Benefits
 Are employee benefits provided in exchange
for the termination of an employee’s
employment
o As a result of either
 An entity’s decision to
terminate an employee’s
employment before the
normal retirement date
 An employee’s decision to
accept an offer of benefits in
exchange for the termination
of employment
 The event that gives rise to the obligation
o Termination of Employment
 Rather than employee service
 Unrelated for future employee service
 Do not include:
o Employee benefits resulting from
termination of employment at the
request of the employee
 Without an entity offer
o As a result of mandatory retirement
 These are postemployment
benefits
 Usually lump sum payments but sometimes
include
o Enhancement of postemployment
benefits
 Either directly or indirectly
 Through an employee
benefit plan
o Salary until the end of a specified
period
 If the employee renders no
further service
Measurement of termination benefits
 That provides
economic benefits to
the entity
Fundamental Principles of Termination benefit
 Not conditional on future service being
provided
 Short period between offer of termination and
actual termination
Recognition of termination benefits
 An entity shall recognize an expense and a
liability for termination benefits at the earlier
of the following dates:
o When the entity can no longer
withdraw the offer of the termination
benefits
 When the plan is already
communicated or announced
to the affected employee
o When the entity recognizes the cost
of restructuring
 That involves the payment of
termination benefits
 Implicit in the recognition criteria
o There needs to be an offer of
termination that binds the entity in
some way
 Offer of termination
o Is the action or activity deemed to
give rise to the termination liability
 Termination costs that are part of a
restructuring place
o Are recognized at the same time as
the recognition of other restructuring
costs
 Restructuring costs
o Expenditures that are necessarily
incurred for the restructuring
 Not associated with ongoing
activities of the entity
o Examples:
 Salaries and benefits of
employees to be incurred
after operation cease
 If the termination benefits are expected to be
settled wholly within 12 months after the end of
the reporting period
o In which the termination benefit is
recognized
 The requirements for short-term
benefit shall be applied.
 Termination benefits are
measures at the undiscounted
amount
 If the termination benefits are not expected to be
settled wholly within 12 months after the end of
the reporting period
o The requirements for long-term benefit
shall be applied.
o Measured at the discounted amount