(Financial Accounting &

Reporting 2)
LECTURE AID

2017

ZEUS VERNON B. MILLAN

FAR PART 2: Zeus Vernon B. Millan

 EMPLOYEE BENEFITS
Overview on the topic:
Chapter Title Sub-topics___
27 Employee Benefits - Part 1 Short-term employee
benefits & Defined
Contribution plans

28 Employee Benefits - Part 2 Defined Benefit plans

& Other benefits

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Chapter 27 Employee Benefits (Part 1)
Related standards: PAS 19 Employee Benefits
PAS 26 Accounting and Reporting by Retirement Benefit Plans

Learning Competencies

• Identify the items that are included in employee

benefits.
• Know the timing of the recognition of employee
benefits.
• Differentiate between a defined contribution plan
and a defined benefit plan.
• Account for defined contribution plans
FAR PART 2: Zeus Vernon B. Millan
Employee benefits

• Employee benefits are all forms of consideration

given by an entity in exchange for service
rendered by employees.

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Four categories of employee benefits under
PAS 19

1. Short-term employee benefits

2. Post-employment benefits
3. Other long-term employee benefits
4. Termination benefits.

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Short-term employee benefits

• Short-term employee benefits are employee benefits

(other than termination benefits) that are due to be
settled within 12 months after the end of the period in
which the employees render the related service.

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Recognition and measurement
When an employee has rendered service to an entity during an accounting
period, the entity shall recognize the undiscounted amount of short-term
employee benefits expected to be paid in exchange for that service:
1. as a liability (accrued expense), after deducting any amount already
paid.
2. as an asset (prepaid expense) if amount paid is in excess of the
undiscounted amount of the benefits incurred; provided, the
prepayment will lead to a reduction in future payments or a cash
refund; and
3. as an expense, unless the employee benefit forms part of the cost of an
asset, e.g., as part of the cost of inventories or property, plant and
equipment.
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Short-term compensated absences
• Accumulating compensated 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. Accumulating compensated absences may
either be
1. Vesting – wherein employees are entitled to a cash payment for
unused entitlement on leaving the entity ; or
2. Non-vesting - wherein employees are not entitled to a cash
payment for unused entitlement on leaving the entity

• Non-accumulating compensated absences are those that are not

carried forward. No liability or expense is recognized until the absences
occur, because employee service does not increase the amount of the
benefit.
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FAR PART 2: Zeus Vernon B. Millan
Profit-sharing and bonus plans

1. Bonus before bonus and before tax

2. Bonus after bonus and before tax

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Profit-sharing and bonus plans

3. Bonus after bonus and before tax

4. Bonus after bonus and after tax

Where: B = bonus
P = profit before deducting bonus and tax
Tr = Tax rate

FAR PART 2: Zeus Vernon B. Millan

Post-employment benefits

• Post-employment benefits are employee benefits (other

than termination benefits) which are payable after the
completion of employment. Post-employment benefit
plans are classified as either:
1. Defined contribution plans
2. Defined benefit plans

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Defined contribution vs. Defined benefit

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Hybrid plans

• Hybrid plans are retirement benefits plans that have

characteristics of both a defined contribution plan and a
defined benefit plan. For accounting purposes, hybrid
plans are considered as defined benefit plans.

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Other relevant terms

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Multi-employer plans & State plans

• Multi-employer plans are pool of assets contributed by various

employers to a trustee which uses those assets to provide
benefits to employees of the various contributing employers. Multi-
employer plans are accounted for as either defined contribution
plan or defined benefit plan.
• State plans are established by legislation to cover all entities and
are operated the government which is not subject to control or
influence by the reporting entity. A state plan is accounted for in the
same way as for a multi-employer plan.

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Accounting for defined contribution plan

• Accounting for defined contribution plans is straightforward

because the reporting entity’s obligation for each period is
determined by the amounts to be contributed for that period.
Consequently, no actuarial assumptions are required to
measure the obligation or the expense and there is no possibility of
any actuarial gain or loss.

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 CLASSROOM
DISCUSSIONS &
COMPUTATIONS
PROBLEM 27-2: THEORY & COMPUTATIONAL

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OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 SEATWORK
(PROBLEM 27-4: CLASSROOM ACTIVITY)

FAR PART 2: Zeus Vernon B. Millan