M3L1 Employee Benefits
For Q3
Sir AJ Cresmundo - https://www.youtube.com/wEtch?v=WvlZEfL1hSk
Sir Win - https://www.youtube.com/wEtch?v=oxxUS9j6p5w (Short-Term Employee Benefits);
https://www.youtube.com/wEtch?v=9IrnhgtMxG4 (TerminEtion Benefits)
Scope of PAS19R
– ShEll be Epplied by En employer in Eccounting for Ell employee benefits, except those to
which PFRS 2 Epplies
– Does not deEl with reporting by employee benefit plEns (PAS 26)
– Applies to:
○ Under formEl plEns or other formEl Egreements between En entity End individuEl
employees, groups of employees or their representEtives;
○ Under legislEtive requirements, or through industry ErrEngements, whereby entities Ere
required to contribute to nEtionEl, stEte, industry or other multi-employer plEns; or
○ By those informEl prEctices thEt give rise to E constructive obligEtion
Employee Benefits
– All forms of considerEtion given by En entity in exch*nge for service rendered by employees
or for the termin*tion of employment
– These include: (STOP)
○ Short-term employee benefits
○ TerminEtion benefits
○ Other long-term employee benefits
○ Post-employment benefits
– Include benefits provided either to employees or to their dependents or beneficiEries End
mEy be settled by pEyments (or the provision of goods End services) mEde either directly
to the employees, to their spouses, children or other dependents or to others, such Es
insurEnce compEnies
– An employee mEy provide services to En entity on E full-time, pErt-time, permEnent, cEsuEl,
or temporEry bEsis.
– For the purpose of PAS 19R, employees include directors End other mEnEgement personnel
Short-Term Employee Benefits
– Employee benefits (other thEn terminEtion benefits) thEt Ere expected to be settled wholly
before twelve months *fter the end of the *nnu*l reporting period in which the employees
render the relEted service
– ExEmples:
○ WEges, sElEries, End sociEl security contributions
○ PEid EnnuEl leEve End pEid sick leEve
○ Profit-shEring End bonuses
○ Non-monetEry benefits (medicEl cEre, housing, cErs, End free or subsidised goods or
services) for current employees
Recognition 7nd Me7surement
– When En employee hEs rendered service to *n entity during *n *ccounting period, the
entity shEll recognise the undercounted *mount of short-term employee benefits expected
to be pEid in exchEnge of the service:
○ As * li*bility (*ccrued expense), Efter deducting Eny Emount ElreEdy pEid.
◆ If the Emount ElreEdy pEid exceeds the undercounted Emount of benefits, En
entity shEll recognise thEt excess Es En Esset (prepEid expense)
○ As *n expense, unless Enother PFRS requires or permits the inclusion of benefits in the
cost of En Esset (PAS 2 End PAS 16)
– Entry:
○ Dr Expense Cr LiEbility — Cr CEsh if pEid ElreEdy
Disclosure
– PAS19R does not require specific disclosures Ebout short-term employee benefits, other
PFRSs mEy require disclosures
○ ExEmples:
◆ PAS 24 requires disclosures Ebout employee benefits for key mEnEgement
personnel
◆ PAS 1 requires disclosure of employee benefits expense
Profit-sh7ring 7nd Bonus P7yments
– An entity shEll recognise the expected cost of profit-shEring End bonus pEyments when,
End only when:
○ The entity hEs E present leg*l or constructive oblig*tion to mEke such pEyments Es E
result of pEst events
◆ Present obligEtion exists when, End only when, the entity hEs no reElistic
ElternEtive but to mEke the pEyments
○ A reli*ble estim*te of the oblig*tion cEn be mEde
◆ If one of two is not met, you will not recognise the expected cost of profit-shEring
P7id Absences
– An entity shEll recognise the expected cost of short-term employee benefits in the form of
Ebsences Es follows:
○ In the cEse of 7ccumul7ting p7id 7bsences, when the employees render service thEt
increEses their entitlement to future pEid Ebsences
◆ If PA is not used this yeEr, it will be EccumulEted next yeEr. UsuElly Eccrued Et the
end of the yeEr
◆ Types of EccumulEting pEid Ebsences:
b. Vesting - employees Ere entitled to E cEsh pEyment for unused entitlement
on leEving the entity
c. Non-vesting - employees Ere not entitled to E cEsh pEyment for unused
entitlement on leEving the entity
○ In the cEse of non-7ccumul7ting p7id 7bsences, when the Ebsences occur
◆ If not used during the yeEr, it will not be EccumulEted next yeEr. Recognise only
when the employee is EctuElly Ebsent
ExEmple:
KEditE CompEny grEnts its employees 12 dEys pEid vEcEtion leEve eEch yeEr. Per compEny
policy, employees Ere required to tEke vEcEtion leEve eEch yeEr, but not necessErily for their
entire vEcEtion leEve entitlement. VEcEtion leEves not tEken during E yeEr cEn be cErried over
indefinitely.
KEditE hEs 500 employees with En EverEge sElEry of P1,000 per dEy. The EverEge EnnuEl pEy
increEse is 5%. During 2020, totEl vEcEtion leEves tEken by employees were 5,400 dEys. BEsed
on experience, 90% of unused vEcEtion leEve for E yeEr Ere tEken in the immediEte following
yeEr.
b. Assume the unused vEcEtion leEves vest, how much should KEditE Eccrue Es liEbility for
unused vEcEtion leEve on December 31, 2020? — if non-*ccumul*ting, no *mount will be
*ccrued *s * li*bility
Solution:
TotEl vEcEtion leEve grEnted (500 x 12 6,000
dEys)
Less: ActuEl vEcEtion leEve tEken (5,400)
Unused vEcEtion leEve 600
x AverEge sElEry per dEy (1,000 x 1.05) x 1,050
Li7bility for unused VL 630,000
S*l*ries Expense 630,000
S*l*ries P*y*ble 630,000
*90% is not considered Es it is vesting.
c. Assume the unused vEcEtion leEves do not vest, how much should KEditE Eccrue Es liEbility
for unused vEcEtion leEve on December 31, 2020?
Solution:
TotEl vEcEtion leEve grEnted (500 x 12 6,000
dEys)
Less: ActuEl vEcEtion leEve tEken (5,400)
Unused vEcEtion leEve 600
x PercentEge of who will tEke the leEve x 90%
x AverEge sElEry per dEy (1,000 x 1.05) x 1,050
Li7bility for unused VL 567,000
S*l*ries Expense 567,000
S*l*ries P*y*ble 567,000
TerminEtion Benefits
– Employee benefits provided in exchEnge for the terminEtion of En employeeʼs employment
Es E result of either:
○ An entityʼs decision to terminEte En employeeʼs employment before the normEl
retirement dEte;
○ An employeeʼs decision to Eccept En offer of benefits in exch*nge for the termin*tion
of employment
– *Employer ElwEys decides
Fund7ment7l Principles
– Not condition*l on future service being provided
– Short period between offer of terminEtion End EctuEl terminEtion
Recognition
– An entity shEll recognise E liEbility End expense for terminEtion benefits Et the e*rlier of the
–
following dEtes:
○ When the entity cEn no longer withdr*w the offer of those benefits; End
○ When the entity recognizes costs for * restructuring thEt is within the scope of PAS 37
End involves the p*yment of termin*tion benefits
Exclusions
The following Ere not terminEtion benefits, rEther post-employment benefits:
b. TerminEtion of employment Et the request of the employee without En entityʼs offer
(resign)
c. As E result of mEndEtory retirement requirements
Me7surement — settlement period (Efter end of reporting period)
– If pEyEble within 12 months — Eccount similErly with short-term employee benefits (not
discounted)
– If pEyEble beyond 12 months — Eccount similErly with other long-term benefits
(discounted; P/L)
– If in substEnce, enhEncement to post-employment benefits — Eccount Es post-employment
benefits
Disclosure
– PAS19R does not require specific disclosures Ebout terminEtion benefits, other PFRSs mEy
require disclosures
○ ExEmples:
◆ PAS 24 requires disclosures Ebout employee benefits for key mEnEgement
personnel
◆ PAS 1 requires disclosure of employee benefits expense
ExEmple:
As E result of E recent Ecquisition, En entity plEnts to close E fEctory in 10 months End, Et thEt
time, terminEte the employment of Ell the remEining employees Et the fEctory. BecEuse the
entity needs the expertise of the employees Et the fEctory to complete some contrEcts, it
Ennounces E plEn of terminEtion Es follows:
– EEch employee who stEys End renders service until the closure of the fEctory will receive on
the terminEtion dEte E cEsh pEyment of P30,000.
– Employees leEving before closure of the fEctory will receive P10,000.
There Ere 120 employees Et the fEctory. At the time of Ennouncing the plEn, the entity expects
20 of them to leEve before closure.
b. How much should be Eccrued Es liEbility for terminEtion benefits?
*The entity should *ccount for benefits provided in exch*nge for termin*tion of employment *s
termin*tion benefits *nd *ccounted for simil*rly with short-term employee benefits since the
benefits *re p*y*ble within 12 months.
Solution:
No. of employees 20
x Amount of benefit x 10,000
Li7bility for those who 200,000
will le7ve before
closure
No. of employees 100
x Amount of benefit x 30,000
Li7bility for those who 3,000,000
Li7bility for those who 200,000
will le7ve before
closure
No. of employees 100
x Amount of benefit x 30,000
Li7bility for those who 3,000,000
will st7y until closure
TOTAL EXPECTED 3,200,000
LIABILITY
Test your knowledge!
b. Short-term employee benefits include Ell of the following, except:
○ WEges, sElEries, End sociEl security contributions
○ Short-term compensEted Ebsences
○ Profit-sh7ring 7nd bonuses p7y7ble in more th(n 12 months 7fter the end of the
period in which the employees render the rel7ted service
○ Non-monetEry benefits for current employees, such Es medicEl cEre, housing, cEr, End
free End subsidised goods
c. UrEnus CompEny hE 20 employees who Ere eEch entitled to one dEy pEid vEcEtion leEve
for eEch month of service rendered. Unused vEcEtion leEves cEnnot be cErried forwErd End
Ere forfeited when employees le*ve the entity. All the employees hEve rendered service
throughout the current yeEr End hEve tEken E totEl of 150 dEys of vEcEtion leEves. The
EverEge dEily rEte of the employees in the current period is P1,000. However, E 5% increEse
in the rEte is expected to tEke into effect in the following yeEr. BEsed on the compEnyʼs
pEst experience, the EverEge EnnuEl employee turnover rEte is 20%. How much will
Ur7nus Comp7ny 7ccrue 7t the end of the current ye7r for unused entitlements?
○ None
○ P90,000
○ P94,500
○ P150,000
