IAS 19, EMPLOYEE BENEFITS
• All forms of consideration given by an entity in
exchange for services rendered by employees or
for termination of employment
• Categories of Employee Benefits:
1) Short-term employee benefits
2) Post-employment benefits
3) Other long-term employee benefits
4) Termination benefits
SHORT-TERM EMPLOYEE BENEFITS
• To be settled within 12 months
• No possibility of actuarial gain or losses
• Unpaid short-term employee benefits at the end
of the accounting period shall be recognized as
ACCRUED EXPENSE
• Any short-term benefits paid in advance shall be
recognized as a PREPAYMENT, reduction in
future payments or cash refunds.
• The cost shall be recognized as EXPENSE, in the
period the economic benefit is given; except
when included in the cost of asset.
• Accumulating paid absences – carried forward
and can be used in future periods
§ Vesting – entitled to cash payment for
unused entitlement on leaving the entity
§ Nonvesting – not entitled to a cash payment
for unused entitlement on leaving the entity.
• Nonaccumulating paid absences – not carried
forward.
JOURNAL ENTRY:
• Accumulating paid vacation leave:
Vacation pay expense xx
Cash xx
Vacation pay expense xx
Accrued vacation pay xx
• Nonaccumulating paid vacation leave
Vacation pay expense xx
Cash xx
*No accrual is necessary*
POST-EMPLOYEMENT BENEFITS
• Employee benefits other than termination
benefits and short-term employee benefits, which
are payable after the completion of employment.
• Contributory plan – the employer and employee
make contributions to the retirement benefit plan,
but they do not necessarily contribute equal
amounts.
• Noncontributory plan – only the employer
makes contributions to the retirement benefit
plan.
• Funded plan – the entity set aside funds for
future retirement benefits by making payments to
a funding agency, such as trustee, bank, or
insurance company.
• Unfunded plan – the entity retains the obligation
for the payment of retirement benefits without the
establishment of a separate fund.
DEFINED CONTRIBUTION PLAN
• A postemployment benefit plan under which an
entity pays fixed contributions into a separate
entity known as the fund.
• The entity will have no legal or constructive
obligation to pay further contributions if the fund
does not hold sufficient assets to pay all employee
benefits relating to employee service in the
current and prior periods.
• Contribution is definite but the benefit is
indefinite
• Percentage of employer’s income or employee’s
earnings or a combination of both.
• Employee bears the investment risk
• Accounting procedures:
§ The contribution shall be recognized as
EXPENSE in the period payable.

§ Any unpaid contribution at the end of the
period shall be recognized as ACCRUED
EXPENSE.
§ Any excess contribution shall be recognized
as PREPAID EXPENSE but only to the
extent that prepayment will lead to reduction
un future payment or cash refund.
c. Remeasurement on effect of asset ceiling
NOTE:
Service cost and Net interest are included in PROFIT OR
LOSS—EMPLOYEE BENEFIT EXPENSE
All remeasurements are fully recognized through OTHER
COMPREHENSIVE INCOME

DEFINED BENEFIT PLAN • Components of FVPA

• An entity’s obligation is to provide the agreed a. Contribution to the fund

benefits to employees. b. Interest income on PA
• The benefit is definite, but the contribution is c. Remeasurement gain or loss on PA
indefinite. d. Benefits paid
e. Settlement price of plan settlement before
• The entity assumes the investment risk retirement

• If the plan is exceptionally good, the entity may JOURNAL ENTRY (CAN BE):
take a CONTRIBUTION HOLIDAY.
Employee benefit expense xx
• If the plan is poor, the entity must make additional Accrued benefit expense xx
contributions for any expected shortfall in order Remeasurement gain xx
to satisfy the promised future benefits. Cash xx

• It is a DBP, if the entity has a legal or constructive NOTE:

obligation:
• FVPA vs PBO
§ To pay the employee benefits directly when
they fall due. § > Prepaid benefit expense
§ < Accrued benefit expense
§ To pay further amounts if the insurer does not
pay all future employee benefits relating to • Settlement price vs PV of obligation settled
employee service in the current and future
period. § > Loss on settlement
§ < Gain on settlement
• Components of Defined Benefit
Cost/Employee Benefit Cost: • Remeasurement

1) Service cost § Actuarial Gain – decrease/deduction to PBO

§ Actuarial Loss – increase/addition to PBO
a. Current service cost
b. Past service cost • Interest income (expected return) vs Actual
c. Any gain or loss on settlement Return

2) Net interest § > Loss; less FVPA

§ < Gain; add FVPA
a. Interest expense DBO
b. Interest income PA EFFECT ON ASSET CEILING
c. Interest expense on effect of asset ceiling
• Interest on the effect of asset ceiling – effect of
3) Remeasurements AC, beg x discount rate

a. Remeasurement on PA
b. Remeasurement on PBO
 • Remeasurement – difference between total
change in the effect of AC and interest in the
effect of AC
NOTE:
Any increase in the effect of asset ceiling is a
REMEASUREMENT LOSS MINUS INTEREST
EXPENSE on the effect of asset ceiling.
Any decrease in the effect of asset ceiling is a
REMEASUREMENT GAIN PLUS INTEREST
EXPENSE on the effect of asset ceiling.
PROFIT-SHARING AND BONUS PLANS
• Employees shall receive a share of profit only if
they remain with the entity for a specified period.
• Shall be recognized if the following conditions
are present:
§ The entity has a present legal or constructive
obligation to make such payment as a result
of past event.
§ A reliable estimate of the obligation can be
made.
JOURNAL ENTRY:
• To record the bonus and the payment
Bonus expense xx
Bonus payable xx
Bonus payable xx
Cash xx
*Part of other long-term employee benefits*
OTHER LONG-TERM EMPLOYEE BENEFITS
• Employee benefits which are not expected to be
settled wholly within twelve months after the end
of annual reporting period in which the
employees render the related service.
• Same as the recognition and measurement of
DEFINED BENEFIT OBLIGATION.
• Difference with DBO: all remeasurements are
recognized in profit or loss.
TERMINATION BENEFITS
• Employee benefits provided in exchange for
termination of an employee’s employment as a
result of either:
§ Entity’s decision to terminate an employee’s
employment before the normal retirement
date.
§ Employee’s decision to accept the offer of
benefits in exchange for termination of
employment.
• Benefit that is in any way dependent on providing
service in the future is not a termination benefit.
• Does not include employee benefit resulting from
termination at the request of the employee
without an entity offer or as a result of mandatory
retirement—CONSIDERED AS POST-
EMPLOYEMENT BENEFITS
• Termination benefits are usually lump sum
payments but sometimes include:
§ Enhancement of postemployment benefits,
either directly or indirectly through employee
benefit plan.
§ Salary until the end of a specified period if
the employee renders no further service that
provides economic benefits to the entity.
• Fundamental principles:
§ Not conditional on future service
§ Short period between offer of termination and
actual termination.
• Recognition at the earlier of the following
dates:
§ When the entity can no longer withdraw the
offer
§ When the entity recognizes the cost of
restructuring
• Expected to be settled wholly within 12
months: undiscounted amount
• Not expected to be settled wholly within 12
months: discounted amount