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Employee Benefits Summary Notes, Lecture notes of Advanced Accounting

Central Mindanao University (CMU)Advanced Accounting

Employee Benefits Summary Notes

Typology: Lecture notes

2019/2020

Uploaded on 08/22/2020

kimberly-gales
kimberly-gales 🇵🇭

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SUMMARY NOTES- EMPLOYEE BENEFITS
Lofranco, Kimberly G.
EMPLOYEE BENEFITS
-all forms of consideration given by an
entity in exchange for services rendered
by employees/ termination of
employment.
-include:
Short-term employee benefits
Postemployment benefits
Other long-term employee benefits
Termination benefits
POSTEMPLOYMENT BENEFITS
-payable after completion of
employment
-can be:
a. formal arrangements between
employee and employer
b. informal arrangements evidenced by
past practices
c. established by law
-part of the remuneration package
-include:
a. retirement benefits
b. postemployment life insurance
c. postemployment medical care
-classified as:
a. defined contribution plans
b. defined benefit plans
Contributory
-both employer &
employee share in
the retirement
benefit cost
Funded
-transferred to a
trustee
Noncontributory
-employer
shoulders all
retirement benefit
cost
Unfunded
-entity retains
obligation for
payment of
retirement
benefits without
establishing a
separate fund
*Funding- transfer of assets (retirement
fund) to an entity separate from the
reporting entity.
Defined Defined Benefit
Contribution
Plans
Plans
-employer makes
fixed contributions
to a fund
-contribution
definite, benefit
indefinite
-employee bears
risk of insufficient
fund balance
-employer
provided agreed
benefits (def amt)
-contribution
indefinite, benefit
definite
-employer bears
risk of insufficient
fund balance
Multiemployer Plan:
-DCP/DBP that pools the assets
contributed by various entities and
provides benefits to employees of
participating entities.
Postemployment Benefit Plans under
the law:
a. SSS- DCP
b. RA 7641- DBP
Insured Benefits:
-treated as DCP but accounted for as
DBP if entity has legal/ constructive
obligation to:
a. pay employee benefits directly when
they fall due
b. pay further amounts if insurer does
not pay all future employee benefits
ACCOUNTING FOR DEFINED
CONTRIBUTION PLAN
-straightforward
-no actuarial assumptions
-obligations measured on undiscounted
basis
Procedures:
a. contribution- expense
b. unpaid contribution- accrued
expense
c. excess contribution- prepaid
expense
Disclosures:
a. amount recognized as expense
b. contribution to DCP (PAS 24)
ACCOUNTING FOR DEFINED
BENEFIT PLAN
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Lofranco, Kimberly G. EMPLOYEE BENEFITS -all forms of consideration given by an entity in exchange for services rendered by employees/ termination of employment. -include: S hort-term employee benefits P ostemployment benefits O ther long-term employee benefits T ermination benefits POSTEMPLOYMENT BENEFITS -payable after completion of employment -can be: a. formal arrangements between employee and employer b. informal arrangements evidenced by past practices c. established by law -part of the remuneration package -include: a. retirement benefits b. postemployment life insurance c. postemployment medical care -classified as: a. defined contribution plans b. defined benefit plans Contributory -both employer & employee share in the retirement benefit cost Funded -transferred to a trustee Noncontributory -employer shoulders all retirement benefit cost Unfunded -entity retains obligation for payment of retirement benefits without establishing a separate fund *Funding- transfer of assets (retirement fund) to an entity separate from the reporting entity. Defined Defined Benefit Contribution Plans Plans -employer makes fixed contributions to a fund -contribution definite, benefit indefinite -employee bears risk of insufficient fund balance -employer provided agreed benefits (def amt) -contribution indefinite, benefit definite -employer bears risk of insufficient fund balance Multiemployer Plan: -DCP/DBP that pools the assets contributed by various entities and provides benefits to employees of participating entities. Postemployment Benefit Plans under the law: a. SSS- DCP b. RA 7641- DBP Insured Benefits: -treated as DCP but accounted for as DBP if entity has legal/ constructive obligation to: a. pay employee benefits directly when they fall due b. pay further amounts if insurer does not pay all future employee benefits ACCOUNTING FOR DEFINED CONTRIBUTION PLAN -straightforward -no actuarial assumptions -obligations measured on undiscounted basis Procedures: a. contribution- expense b. unpaid contribution- accrued expense c. excess contribution- prepaid expense Disclosures: a. amount recognized as expense b. contribution to DCP (PAS 24) ACCOUNTING FOR DEFINED BENEFIT PLAN

Lofranco, Kimberly G. -complex -actuarial assumptions are required -obligation measured on discounted basis -expense recognized is not necessarily the amount of contribution for the period Steps: #1 Determine the deficit/ surplus PV of DBO – FV of Plan Assets #2 Determine the net defined benefit liability/ asset

- amount presented in statement of financial position - asset is higher between: a. surplus b. asset ceiling- PV of any economic benefits (refunds/ reductions in future contributions) #3 Determine the defined benefit cost Components of defined benefit cost:

  1. Service cost: P/L a. Current service cost b. Past service cost c. Gain/loss on settlement
  2. Net interest: P/L a. Interest expense on DBP b. Interest income on plan assets c. Interest expense on effect of asset ceiling
  3. Remeasurement: OCI a. Remeasurement of plant assets b. Remeasurement of projected benefit obligation c. Remeasurement of the effect of asset ceiling *Actuary- mathematical expert Service Cost a. Current Service Cost: -increase in the PV of defined benefit obligation from employee service in the current period -cost to an entity under a DBP for service rendered by employees in the current year b. Past service cost: -cost to an entity under a defined benefit plan for services rendered by employees in prior periods -result from: a. Plan amendment- introduction/ changes b. Plan curtailment- significant reduction in number of employees; may arise from: i. Closing of a plant ii. Discontinuance of an operation iii. Termination/ suspension of plan -recognized as expense at earlier of: a. when plan amendment/ curtailment occurs b. when entity recognizes related restructuring costs/ termination benefits *vested benefits- employee benefits not conditional on future employment c. Gain/ loss on settlement -arises when employer’s obligation to provide benefits is eliminated PV of DBO – Settlement price Net Interest on DB liability (asset): -change as a result of passage of time -difference between three elements: a. interest expense on defined benefit liability b. interest income c. interest expense on effect of asset ceiling Remeasurements of DB liability (asset): a. Actuarial gains -result from changes in actuarial assumptions (estimates of variables) a. demographic assumptions b. financial assumptions

Lofranco, Kimberly G. b. intention to either settle obligations on a net basis or realize the surplus in one plan and settle its obligation under other plan simultaneously OTHER LONG-TERM EMPLOYEE BENEFITS -due to be settled beyond 12 months after the end of the period in which the employees have rendered related service: a. long-term compensated absences (sabbatical leave) b. jubilee/ other long-service benefits c. long-term disability benefits d. profit-sharing, bonuses and deferred compensation payable beyond 12 months TERMINATION BENEFITS -arises from the employer’s act of terminating an employee -result of either: a. entity’s decision before normal retirement date b.employee’s decision to accept employer’s offer of benefits in exchange for termination -benefits from termination at employee’s request are not termination benefits but rather post-employment benefits Recognition: -recognized as a liability and expense at the earlier of: a.when entity can no longer withdraw the offer of those benefits b.when entity recognizes restructuring costs under PAS 37 Measurement: -accounted for according to their nature a.payable within 12 mos- short-term benefits b.payable beyond 12 mos- other long- term benefits c.enhancement to post-employment benefits- post-employment benefits