PAS 19: Employee Benefits
EMPLOYEE BENEFITS (PAS 19)
PAS 19 Employee Benefits outlines the accounting requirements for employee benefits,
including short-term benefits (e.g. wages and salaries, annual leave), post-employment
benefits such as retirement benefits, other long-term benefits (e.g. long service leave)
and termination benefits.
Short-term employee benefits
Short-term employee benefits are those expected to be settled wholly before twelve
months after the end of the annual reporting period during which employee services are
rendered, but do not include termination benefits. Examples include wages, salaries,
profit-sharing and bonuses and non-monetary benefits paid to current employees.
1. Compensated Absences
Compensated absences are absences for which employees will be paid, such as vacation,
sick leave, and sabbatical leave
2. Profit-sharing and bonus payments
An entity recognizes the expected cost of profit-sharing and bonus payments when, and
only when, it has a legal or constructive obligation to make such payments as a result of
past events and a reliable estimate of the expected obligation can be made.
Profit Sharing and Bonus Payments was already discussed in the current
liability part.
Post-Employment Benefits
Post-employment benefit plans are informal or formal arrangements where an entity
provides post-employment benefits to one or more employees, e.g. retirement benefits
(pensions or lump sum payments), life insurance and medical care. It can be classified as
either a defined contribution plan or a defined benefit plan:
Defined Contribution Plans Defined Benefit Plans
Under a defined contribution plan, the
entity pays fixed contributions into a fund
These plans create an obligation on the
but has no legal or constructive obligation
entity to provide agreed benefits to current
to make further payments if the fund does
and past employees and effectively places
not have sufficient assets to pay all of the
actuarial and investment risk on the entity.
employees' entitlements to post-
employment benefits.
Note: If the post-employment benefit plan contains characteristics of bond contribution
plans and benefit plans, the plan is considered Defined Benefit Plans.
ACCOUNTING FOR DEFINED CONTRIBUTION PLANS
For defined contribution plans, the amount recognized in the period is the
contribution payable in exchange for service rendered by employees during
the period
Thus, accounting is straightforward. Actuarial assumptions are not required.
Retirement benefits expense is equal to the agreed periodic contributions to
the fund.
Dr. Retirement Benefit Expense xxx
Cr. Cash xxx
ACCOUNTING FOR DEFINED BENEFIT PLANS
Actuarial computations are required in the computation of defined benefit.
The following are the steps in accounting for defined benefit plans:
o Determine Deficit or Surplus
o Determine Net Defined Liability or Net Defined Asset
o Determine the Components of the defined Benefit Cost to be
recognized in Profit or Loss or OCI
Step 1: Determine Deficit or Surplus
o PV of Defined Benefit Obligation > Fair Value of Plan Assets =
Deficit
o PV of Defined Benefit Obligation > Fair Value of Plan Assets =
Surplus
PV of Defined Benefit Obligation Fair Value of Plan Assets
Beg. Bal. Beg. Bal Benefits Paid
Benefits Paid Current Service Cost Actual Return on PA
Actuarial Gain Past Service Cost Contributions
Interest Cost
Actuarial Loss
End. Bal. End. Bal.
Current Service Cost – increase in the obligation resulting from employee service during
the period
Past Service Cost – the change in the obligation for employee service in prior period
Interest Cost – Interest on the obligation
Actuarial Gains and Losses – changes in the obligation resulting from changes in actual
assumptions
Gain – If the value of the obligation decreased
Loss – if the value of the obligation increased
Benefits Paid – amount paid to retirees
Return on Plan Assets – income of the plan fund
Contributions – additional asset placed in the plan fund
Step 2: Determine Net Defined Liability or Net Defined Asset
o If DEFICIT, it is the net defined liability.
o If SURPLUS, the lower between the surplus and asset ceiling is the
net defined asset.
Asset Ceiling is the PV of economic benefits from refunds
from the plan or reductions in future contributions to the
plan.
Step 3: Determine the Components of the defined Benefit Cost to be
recognized in Profit or Loss or OCI
o To compute for Defined Benefit Cost
Service Cost
Current Service Cost xx
Past Service Cost xx
Gain or Loss on Settlement xx xxx
Net Interest Cost
Interest Income on Plan Asset (xx)
Interest cost on obligation xx
Interest on the effect of asset ceiling xx xxx
Remeasurements
Actuarial Gains or Losses xx
Difference between ROPA and Income xx
Difference between effect and interest
On asset ceiling* xx xxx
TOTAL Defined Benefit Cost xxx
Remeasurement on Asset Ceiling is computed as Follows:
Ending Difference (Surplus – Asset Ceiling) xxx
Less: Beginning Difference (Surplus – Asset Ceiling) xxx
Less: Interest on Beg. Difference (Beg. Diff. x Rate) xxx
Remeasurement on Asset Ceiling xxx
Components Presentation
Service cost attributable to the current and past periods Profit or loss
Net interest Profit or loss
Remeasurements OCI
