IAS -

19 EMPLOYEE BENEFIT
 IAS 19 EMPLOYEE BENEFIT
-

1 Short Term Benefits

2
Long Term
Benefits
3 Post Employment Benefits
4 Termination Benefits

Defined Contribution Plan

Risk of Employee

Thats why simple accounting for Employer

contribution Paid by Er

Pg L xxx

cash xxx

→ If contributions are
unpaid ,
then Accrue it PG L xxx

→ If Employer has paid in advance

,
then
prepayment -
Accrued xxx

Defined Benefit Plan

Risk of Employer Employer promised employee that I will provide you this much Benefits at the time of Retirement e.g Employer promised
. .

Employee that you will get 501 of Final salary as a pension Now this is the Risk of Employer Employer has to pay it at any cost
-
. .
.

risk is
Now IAS
says when employer high so report it in Financial statement .

This whole calculation is done It Employee will Earn Pension Every Year
→
through projected Unit Method .
means .

This first year of Now think this hard and Pension

year Employees
Now think started
a
company just is
company wash earn some .
. . .

This is called current service cost .

PGL xxx

D BO xxx
 DBO Plan Asset

Present Value of DBO ( Hf) xxx Fair Value of Plan Asset ( b tf) xxx

Add :
interest Exp xxx Add : Interest Income xxx

Add : Current Service cost xxx Add : contribution paid into plan xxx

Add Past service cost

: xxx Less : Benefits Paid (xxx )
gain toss
Less Benefits paid
: ( xxx) Remeasurement component ( B ) xxxx ( (xxx ) I
Remeasurement component xxx / ( xxx) Fv of Plan Asset
closing
.
xxx

Present value of DBO

closing xxx

Contribution Paid Plan Asset xxx

cash xxx

current service cost

Pension Earned the current But will paid in Future
by Employee in
period . be .

PGL xxx

DBO xxx

of Discounts DBO
Unwinding in

Int Exp xxx

DBO xxx

Benefits Paid to Employee ( Those who

got Retired)

DBO xxx

Plan Asset xxx

¥ .

Which Interest Rate to be used for discounting ?

Aris .

High Quality corporate bonds Interest Rate

.

If High Quality corporate bonds rate not available then use Interest Rate of bonds
→ ,
government .

→ This
defined Benefit accounting is must , not
only in case of
legal Obligation ,
but also in case of constructive obligation same

is applied
Accounting .

Past service cost

In the commit ed 401 Pension
Means amendmends in Plan our
employees joined. 3
years before
.

beginning we we would
give you
.

of
But of Final
Final
salary . now after 3
years
we amended the Plan .
we said now we
give 551. Pension
Salary .
This would
DBO would it is vested
increase our .
we complete obligation now
,
whether
0¥ Non Vested
-
.

P GL xxx

D BO xxx

Plan Asset xxx

contribution Paid in the Plan Asset Cash

by Employer . xxx

Act urial Assumptions

① Demographic :
Mortality Rate
, Qualification , Age
.

② Financial : Inflation ,
Labour Market competition .

Remeasurement component goes

→ in OCI
immediately .
Plan Asset

① Funded : Means
Ring fenced ,
means Plan Asset separate from company ,
company can't use Plan Asset for its benefit ,
even if
company
is dissolved / liquidated ,
The creditors can't touch this Plan Asset . Sometime it is in the form Of
Qualifying
Insurance
Policy .

② Un Funded
- : No
Ring fenced
,
separate Plan Asset maintained
by co .
e.
g
state bank .

Funded Plan Asset safe for Employee

.

Items to be reported in Peel

→ Interest Exp
→ Interest Income
→ current service cost q Past service cost .

gain / loss curtailment & settlement

→ on .

Illustration
On # I

DBO Plan Asset Met

80
Opening 140 GO
Peel 32.4

Interest 4% 5-6 3-2 2.4 Oct 12.6

c. S.C 30 30 Cash 25

Contribution Paid 0 25 (25) DBO 20

Benefits Paid 120) (20) -

Remeasurement 44.4 31.8 12 -6

Component

closing 200 120 80

Red Past paper

.

Q
?⃝
 Redost

DBO Plan Asset Met

Opening blf 45 52 (7) OCI 178

Interest 45 52 (0-7) Plan Asset 1317

Contribution Paid -
12 ( 12) Cash 12

PGL 2.95
Benefits Paid (8) (8) -

c. S.c 3-75 375

Past service cost (6) (6)
Remeasure merit loss 4-75 gain 2.97 1.78 loss

component
64-17
44 (20-17)
?⃝
 DBO Plan Asset Met

Opening
Interest 5%
30
I -5
28
1.4
2
0.1
Contribution Paid -
2 (2)
Benefits Paid (3) (3) -

c. S c
-

l 1
Remeasuremerit loss 5.5 0.6 loss
gain 4.9
component

closing 35 29 6

Curtailment .

Reduction of A- of Employee from scheme .

Without settlements .

Payment of cash whatever has earned in Last few

No
immediately .

employee years
will be
given to him at the
age of Retirement .
Now because of this curtailment DBO Balance will be Revised .

eg_
DBO
just before curtailment 600

DBO
just after curtailment 1540) DBO 60

curtailment 60 Pal 60
gain
on

With settlement

Employees sometimes demand to transfer Pension earned to date in new

employer account -
means its settlement from our side

case # I tended Case # 2 Unfunded

DBO 50
DBO 50
PGL 5
PGL 5
Plan Asset 55 Cash 55
 ,5
Q

at

¥
Opening DBO 450
600
Closing DBO
Opening fair value of Plan Assets 300
" 500
Closing
" "
"

Current service cost 50

Past service cost 70

Curtailment with settlement DBO = 30

Payment made
35
through Plan Asset =

Interest Rate 101 .

Contribution Paid into the plan = 50

Former Ee
Benefits Paid to = 60

Reg Extract
__ .

DBO Plan Asset Met

Opening 450 300 150 PGL 140

Interest 45 30 15 DBO 50
c. S.c 50 50 OCI 140

p.sc 70 70 Cash 50

Curtailment 130) 135) 5

Contribution Paid 50 ( 50)
Benefits Paid 60) (60) -

Remeasurement loss 75 215 gain ( 140) gain

closing
600 500 100
¥ Opening DBO 1000

Closing DBO 1500

Opening fair value of Plan Assets 700

"

Closing
"
" "
1200
current service cost 500
Past service cost 200

Pension paid to Former Employee

300

Contribution Paid into the Plan

by Employer 400
Interest 101.

Req : Extract ?

DBO Plan Asset Net

Opening 1000 700 300

710
Interest 90 80 to PEEL
C 'S C
-
500 500 Cash 400

P S.C
- 200 200 OCI 310

Curtailment
contribution Paid 400 (400)
Benefits Paid (300) ( 300) -

Remeasurement loss 10 320 gain [ 310) loss

1500 1200
Closing 300
 Asset Ceiling
Plan Asset 1500 Lower
DBO (1200) Off
Net Plan Asset 30T 1-

should be restricted to >

Present value of future Eco benefit

through Refunds OI Reduced future contribution = 180

Oct 120
Remeasurement
→
Plan Asset 120 Component .

One Commonly Asked Question in Past Paper

If co Book
.
a
pension scheme as
defined benefit scheme . Then co has to Book DBO
.

,
which means
Liability in the Books of Employer
and Risk .

Thats wants to Plan

defined Contribution Plan
why Co .

deliberately book
defined benefit as
Cumulative Bonus :

# 500
' '

L
'
o l z y s

PG L 68.3 5¥ = 100

Bonus Payable 68 3 -

→ If an
Employee works for 5
years ,
he will
get bonus of Rs 500¥ at the end of
.
Yr 5. Total 500 divided
by 5 yrs means Bonus of 1001 year
recorded at Present value each
year
-

PV = 100 = 68.3
(I to .by

Q .

=
Current 500M
salary =

Bonus : lot of salary per yr ( cumulative)

salary Growth = 201.

/ year
Discount Rate =
10%1 annum

# of 5
years =
years
Req for Year I ?
:
Entry
500 600 720 864 1036 8-

3720 . 8
€5 NO %
37¥
=
3 2 Total bonus

PV = 74.4 = 5082 - = 74.41 annum

PEEL 50.82 1¥ ,

Bonus Payable 5082

Q

PAID LEAVES
-

1
ACCLIMATING NON ACCUMULATING
-

I
Can be elf for future cannot be converted Can be
into cash Encashed
Book Original Salary
No Responsibility 300K
Original
holiday Pay Accrual On Employer Salary
I
Just Book
Original Salary Holiday Pay
Accrual
Expense

40W IN ACCUMULATING 2 CASES

can be Clf can be clf only for 1

Indefinitely year, after that it

will be Expired
Book
Holiday Pay Book
Holiday
Accrual full Pay Accrual
On
according
unused leaves to Expectation of
resting
.
 ¥
Q .

Q
'
ltd

Handout
5×52 = 260 Working days

Effective salary / working =

3650cg = 1404 / working day
260 days

Accrual
Holiday Pay = 10 ✗ 1404
=

PEEL 14040

Holiday Pay Accrual 14040

 Q .

ltd

Example 4 (a) ( same)

260 working days

a) PGL 14040

Holiday Pay 14040

Accrual

b) 3 days ✗ 1404 = 4212

"" ""

Holiday Pay 4212

Accrual

①
①
Unpaid contributions
by employer are treated →
Defined
accrued Benefit
as
liability ,
at the
year end .

Plan
Remaining all
accounting same

PGL ✗ ✗✗

OCI ✗ ✗✗
current
→
Accrued liability ✗✗✗
liability
DBO xxx