Presented by Group 3

PAS 19
Employee Benefits
 Learning Objectives
1. Differentiate between the four (4) classification of employee
benefits under PAS 19.
2. State the timing of the recognition of employee benefits.
3. Differentiate between a defined contribution plan and a defined
benefit plan.
4. State the accounting procedures for defined benefit plans.
Introduction
to PAS 19
PAS 19 prescribes the accounting for employee benefits by employers, EXCEPT
employee benefits within the scope of PFRS 2 Share-based Payment and reporting
by employee benefit plans to which PAS 29 Accounting and Reporting by
Retirement Benefit Plans applies.

Employee benefits are “all forms of consideration given by an entity in

exchange for service rendered by employees.
4 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
Short-term employee benefits
these 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.

ex: paid time off

 Recognition and
Measurement
1. as a liability (accrued expense), after deducting any amount already paid.
2. as an asset (prepaid expense) if the amount paid is in excess of the
undiscounted amount of the benefits incurred; provided, the repayment will
lead to a reduction in future payments or a cash refund
3. as an expense, unless the employee benefit forms part of the cost of an
asset.
Short-term compensated absences
a. Accumulating
those that can be carried forward and used in future periods if not
used in the current period. Accumulating paid absences may be
either:

1. Vesting - unused entitlement are paid in cash when the employee

leaves the entity (i.e., monetized)
2. Non-vesting - unused entitlement are not monetized.
Short-term compensated absences
b. Non-accumulating
those that expire if not used in the current period and are
not paid in cash when the employee leaves the entity.
 Comparison
Accumulating Non-
accumulating
When the employees
render service that when the absences
increases their entitlement occur
to future compensated
absences
Post-employment benefits
Post-employment benefits are employee benefits (other
than termination benefits) that are payable after the
completion of employment. Post-employment benefit
plans are classified as either:

1. Defined contribution plans

2. Defined benefit plans
 Post-employment
benefit plans
Post-employment benefit plan can be a formal arrangement or it
can also be informal. Post-employment benefit plans can be:

a. Contributory or Non-contributory; and

b. Funded or Unfunded
Post-employment benefit
plans are either:

01. DEFINED CONTRIBUTION PLANS; OR

02. DEFINED BENEFIT PLANS

Comparison
 Accounting for defined
contribution plan
The 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.
 Accounting for defined
benefit plan
The accounting for defined benefit plans is complex
because actuarial assumptions are required to
measure the obligation and the expense and there is a
possibility of actuarial gains and losses.

Obligations are measured on a discounted basis.

 Accounting procedures for
defined benefit plans
Step #1: Determine the deficit or surplus

(Deficit) Surplus = FVPA – PV of DBO

FVPA < PV of DBO = deficit

FVPA > PV of DBO = surplus
 Accounting procedures for
defined benefit plans
Step #2: Determine the Net defined benefit liability
(asset)

If there is a deficit, the deficit is the net defined

benefit liability.
If there is a surplus, the net defined benefit asset is
the lower of the surplus and the asset ceiling.
 Accounting procedures for
defined benefit plans
Step #3: Determine the defined benefit
cost

Defined benefit cost is the expense that an employer incurs for providing retirement
benefits to employees through a defined benefit pension plan. It represents the cost
of promising and delivering future pension benefits to employees based on a
predetermined formula.
Other terms:
Multi-employer plans - can either be a defined contribution
plan or defined benefit plan.
State plans - is established by law and operated by the
government.
Insured benefits - benefits that are promised under specific
conditions
 Other long-term employee benefits
Other long-term employee benefits are employee benefits
(other than post-employment benefits and termination
benefits) that are due to be settled beyond 12 months after
the end of the period in which the employees render the
related service.
Other long-term employee benefits are accounted for using
the procedures applicable for a defined benefit plan.
However, all of the components of the net benefit cost are
recognized in profit or loss.
 Termination benefits
Termination benefits are employee benefits provided in
exchange for the termination of an employee's employment as a
result of either:

an entity's decision to terminate an employee's employment

before the normal retirement date; or
an employee's decision to accept an entity's offer of benefits
in exchange for the termination of employment.
 PAS 20
Accounting for Government Grants
& Disclosure of Government
Assistance
 Learning Objective:
1. Explain the recognition and measurement of
government grants.
2. Explain the presentation of government in
the financial statements
 Introduction of
PAS 20
PAS 20 prescribes the accounting and disclosure of government grants and
the disclosure of other forms of government assistance.

PAS20 does not apply

a. accounting for government grants under hyperinflationary
economies
b. tax benefits such as income tax holidays, investment tax credits,
accelerated depreciation allowances and reduced income tax rates;
c. government participation in the ownership of the entity; and
d. government grants covered by PAS41 Agriculture.(PAS20)
Government Grants
Government Grants (sometimes called subsidies, subventions, or
premiums ) are assistance received from the government in the form of
transfers of resources in exchange for compliance with certain
conditions.
Examples:
Receipts of cash, land, or other non-cash assets from the government
subject to compliance with certain conditions
Receipts financial aid in case of loss from calamity
Forgiveness of an existing loan from government
Benefit of a government loan with below-market rate of interest.
Only government assistance that meet the asset recognition criteria are
recognized as government grants. Accordingly, government grants
exclude government assistance whose value cannot be reasonably
measured or cannot be distinguished from the entity’s normal trading
transactions.
The following are forms of government assistance but are not
government grants:
Tax benefits
Free technical or marketing advice
Provision of guarantees
Government procurement policy that is responsible for portion
of the entity’s sales
RECOGNITION
Government grants are recognized if there is
reasonable assurance that:
a) The attached conditions will be complied with; and
b) The grants will be received
The mere receipt of grant is not conclusive evidence
that the attached condition has been or will be satisfied
Types of government grants according to attached condition
1. Grants related to assets- grants whose primary condition
that the recipient entity should acquire or construct
long-term assets.
EXAMPLES;
a)Cash is received from the government with the con that the
amount should be used to acquire equipment
b)Land is received from the government with the condition that
a building should be constructed on it.
2. Grants related to income - grants other than those related
to assets.
MEASUREMENT :
MONETARY GRANTS NON-MONETARY GRANTS

a. fair value of the non- a. amount of cash received

monetary asset received or or;
b. alternatively, at nominal b. fair value of amount
amount receivable
 Fair Value is “the price that would be received to
sell an asset or paid to transfer liability in an
orderly transaction between market participants at
the measurement date”

Government Grants may also be in the form of

loan, such as:
Forgivable loan-a loan that the lender
(government) waives repayment subject to
certain conditions; or
Loan at below market - market rate of
interest or zero- interest
Approaches to the accounting for
government grants
CAPITAL APPROACH INCOME APPROACH

-grants is recognized -grant is recognized in

outside profit or loss in profit or loss over one
equity or more periods.

PAS 20 uses the income approach. The capital approach is used

only when donations are received from shareholders
Accounting for
Grants related to depreciable assets

A. are recognized in profit of loss over

government grants
the periods and in the proportions
in which depreciation expense on
those assets is recognized

Government Grants are “recognized in profit or

loss on a systematic basis over the periods in
Grants related to non-depreciable

B.
which the entity recognizes as expenses the
assets are recognized in profit or
related costs for which the are intended to
loss when the costs of fulfilling the
compensate”(PAS 20.12)
attached condition are incurred.
Accounting for government grant uses a
‘matching’ concept such that, if the related
Grants received as financial aid for

C.
expense is not yet recognized, income from
government grant is also not yet
recognized. Accordingly:
expenses or losses already incurred are
recognized immediately in profit or
loss when the grant becomes receivable
(because the related costs have already
been expensed)
GRANTS RELATED TO ASSETS
Grants related to assets may be presented either by gross presentation or
net presentation as follows:

Statement of financial position

Gross presentation Net presentation

-The grant is presented -The grant is deducted

as a deffered income from the carrying amount
(liability) of the related asset
GRANTS RELATED TO ASSETS
Grants related to assets may be presented either by gross presentation or
net presentation as follows:

Statement of comprehensive income (profit or loss section)

Gross presentation Net presentation

-The income from the grant -The income from the grant
is reported separately or is deducted from the
included in ‘Other income’ depreciation charge
Grants related to income
Grants related to income may also be presented either by
gross presentation or net presentation as follows:
Statement of comprehensive income (profit or loss section)

Gross presentation Net presentation

-The income from the grant -The income from the grant
is reported separately or is deducted from the
included in ‘Other income’ depreciation charge
Repayment of Grants
A government grant that become repayable for examples, due to future to
satisfy the attached condition, is treated as a change in accounting estimate
and accounted for prospectively.
The repayment of a grant related to income is deducted from the related
deffered income balance, if any. Any excess is recognized immediately as in
profit or loss.
The repayment of a grant related to asset is treated as a reduction in the
deffered income balance or an increase in the carrying amount of the asset.
The cumulative additional depreciation that would have been recognized in the
absence of the grant is recognized immediately in profit or loss.
Following repayment, the entity may need to consider the possibility of
impairment of the new carrying amount of the asset
 Disclosure
a. Accounting policy and method of presentation
b. Nature and extent of government grants and
other forms of government assistance from which
the entity has directly benefited
c. Unfulfilled conditions and contingencies
attached to the government grants
 PAS 21
THE EFFECTS OF
CHANGES IN FOREIGN
EXCHANGE RATES
 LEARNING OBJECTIVES
1. Differentiate between the two ways of conducting
foreign activities.
2. State the initial and subsequent measurements of
foreign currency transaction.
3. Decribe the procedures in translating financial
statements into a presentation currency.
 INTRODUCTION to PAS 21
PAS 21 prescribes the accounting for foreign activities and the
translation of financial statements into a presentation currency.

Two ways of conducting foreign activities

1. Foreign Currency Transactions
2. Foreign Operations
Two main accounting issues
a. Which exchange rate(s) to use; and
b. How to report the effects of changes in exchange rates in the financial
statements.
 FUNCTIONAL CURRENCY
- Is the currency in which the entity’s cash inflows and outflows are
normally denominated into and is not necessarily the currency of the
country where the entity is based.

Factors when determining its functional currency:

a. the currency that mainly influences the entity’s sale prices and cost of
goods or services.
b. the currency in which cash flows from financing activities and
operating activities are usually generated and retained.
 FUNCTIONAL CURRENCY
Factors when determining the functional currency of a foreign operation:
the foreign operation is essentially an extension of the entity
the proportion of the foreign operation transactions with the entity
the nature of the foreign operation’s cash flows in relation to the entity.

Once determined, the functional currency is not changed unless there is a

change in underlying transactions, events, and conditions. A change in functional
transaction currency is accounted for by translating the financial statements into
the new functional currency prospectively from the date of change.
All currenies other than entity’s functional currency are considered foreign
currencies.
 FOREIGN CURRENCY TRANSACTIONS
is “a transaction that is denominated or requires settlement in a foreign
currency”. (e.g. import or export transactions that are settled in a foreign
country.)

Initially Recognized
by translating the foreign currency amount into the functional currency
using the spot exchange rate at the date of the transaction.

Spot exchange rate - the current exchange rate on the given date.
Date of a transaction - the date on which the transaction first qualifies
for recognition in accordance with PFRS.
Subsequent Measurement

Items Translated using

a. Monetary Items Closing rate

b. Nonmonetary items measured

Exchange rate at the date of transaction
at historical cost

c. Nonmonetary items measured Exchange rate at the date when the fair
at fair value value was determined.

Closing rate - the spot exchange rate at the reporting date.

 MONETARY ITEMS vs NON-MONETARY ITEMS
Monetary Items
-are currencies held assets and liabilities to be received or paid in a
fixed or determinable

Monetary Assets Monetary Liabilities

a. Cash and cash equivalents a. Accounts/Notes/Loans/Bonds payable

b. Accounts/Notes/Loans receivable b. Employee benefits to be paid in cash

c. Finance lease receivables c. Provisions and accrued payables to be settled in cash.

d. Cash surrender value d. Cash dividends payable.

 MONETARY ITEMS vs NON-MONETARY ITEMS
Non-monetary Items
-are those which do not give rise to the receipt or payment of a fixed or
determinable amount of money.

Non-monetary Items

a. Inventories e. Intangible assets

b. Prepaid Assets f. Goodwill

c. PPE g. Provision that are to be settled by the delivery of a non-monetary asset

d. Investment property h. Share capital and share premium.

 MONETARY vs NON-MONETARY ITEMS
Exchange Differences
-Is “the difference resulting from translating a given number of units of
one currency into another currency at different exchange rates.”

Exchange differences arising from settling or translating;

a. Monetary items are recognized in profit or loss in a period which they
arises.
b. Nonmonetary items - if the gain or loss is recognized in other
comprehensive income (OCI), the exchange component of the gain or
loss is also recognized in OCI.
 TRANSLATION OF FINANCIAL STATEMENTS
An entity is required to present its financial statements using its functional
currency. However, whenever needed, the entity may translate its financial
statements into any presentation currency as follows;
Items Translating using

a. Assets and Liabilities -Closing date at the date of the financial statement

b. Income and Expenses -Exchange rates at the dates of the transactions

All resulting exchange differences are recognized in other comprehensive income.

Presentation currency - is “the currency in which the (entity’s) financial

statements are presented.
 FOREIGN OPERATION
-Is a subsidiary, associate, joint venture or branch that is based in a
foreign country and is using a foreign currency.
(e.g. A branch in another country.)

-When a foreign operation is disposed of, the cumulative amount of

exchange differences recognized in other comprehensive income and
accumulated in equity is reclassified to profit or loss as a reclassified
adjustment.
 FOREIGN OPERATION
Disclosure
a. Exchange differences recognized in profit or loss and OCI.
b. The fact and reason for using a different presentation currency from
the entity’s functional currency.
c. The fact and reason for a change in functional currency.
Thank you!