CODE INTERMEDIATE ACCOUNTING – 3

591
school: UNIVERSITY OF SAINT LOUIS – TUGUEGARAO
department: SCHOOL OF ACCOUNTANCY BUSINESS & HOSPITALITY

“PRELIMS” fund does not hold sufficient assets to pay all

employee benefits
POST-EMPLOYMENT BENEFITS (IAS 19) b. Defined benefit plans
EMPLOYEE BENEFITS – The entity’s obligation is to provide the
– are all forms of consideration given by an entity in agreed benefits to current and former
exchange for service rendered by employees or for the employees
termination of employment – Actuarial risk (that benefits will cost more
Categorize into 4 than expected) and investment risk fall, in
 Short-term employee benefits substance, on the entity
– Are employee benefits (other than termination
– If actuarial or investment experience are
benefits) that are expected to be settled wholly
worse than expected, the entity’s obligation
before 12 months after the end of the reporting
may be increased
period in which the employees render the related
service
 Other long-term employee benefits ACCOUNTING FOR DEFINED CONTRIBUTION
– Are all employee benefits other than short-term PLAN
employee benefits, post-employment benefits and – Is straightforward because the reporting entity’s
termination benefits obligation for each period is determined by the amounts
 Termination Benefits to be contributed for that period
– Are employee benefits provided in exchange for – No actuarial assumptions are required to measure the
the termination of an employee’s employment as a obligation or the expense and there is no possibility of
result of either; any actuarial gain or loss
1. An entity’s decision to terminate an – The obligations are measured on an undiscounted basis,
employee’s employment before the normal except where they are not expected to be settled wholly
retirement date; or before 12 months after the end of annual reporting
2. An employee’s decision to accept an offer of period in which the employee render the related service
benefits in exchange for the termination of Pro-Forma Entries
To recognize employee benefit expense
employment
Benefit expense xxx
 Post-employment benefits Accrued benefit expense/Salaries payable xxx
– Are employee benefits (other than termination
benefits and short-term employee benefits) that are To recognize the contribution made to the fund (settled)
payable after the completion of employment Accrued benefit expense/Salaries payable/ xxx
Cash xxx
NOTE:
ACCOUNTING FOR POST-EMPLOYMENT
 If the Benefit Expense is greater than the
BENEFITS
Contribution Made – Accrued Expense
– Post-employment benefit plans are formal or informal
 If the Benefit Expense is less than the Contribution
arrangements under which an entity provides post-
Made – Prepaid Expense
employment benefits for one or more employees.
– Post-employment benefit plans, depending on the
economic substance of the plan as derived from its ACCOUNTING FOR DEFINED BENEFIT PLAN
principal terms and conditions, are classified as either; – Accounting for defined benefit plans is complex because
a. Defined contribution plan actuarial assumptions are required to measure the
– An entity pays fixed contributions into obligation and the expense and there is a possibility of
actuarial gains and losses
separate entity (a fund) to provide benefits
– The obligation are measured on a discounted basis
relating to employee service in the current
because they may be settled many years after the
and prior periods
employees render the related service
– As a consequence, actuarial risk (that benefits
STEP 1:
will be less than expected) and investment
– Determining amounts to be recognized in profit or loss
risk (that assets invested will be sufficient to
a. Current service cost
meet expected benefits) fall, in substance, on
– Current service cost, which is the increase in
the employee
the present value of the defined benefit
– Entity will have no legal or constructive obligation resulting from employee service in
obligation to pay further contributions if the the current period.

AUGUSTE ANTHONY U. SISPEREZ Page | 1

 CODE INTERMEDIATE ACCOUNTING – 3
591
school: UNIVERSITY OF SAINT LOUIS – TUGUEGARAO
department: SCHOOL OF ACCOUNTANCY BUSINESS & HOSPITALITY

– These are changes in the present value of the

b. Any past service cost and gain or loss on defined benefit obligation resulting from
settlement o Experience adjustments (the effects of
– Past service cost, which is the change in the differences between the previous
present value of the defined benefit obligation actuarial assumptions and what has
for employee service in prior periods, actually occurred)
resulting from a plan amendment or a o The effects of changes in actuarial
curtailment. assumptions
– Any gain or loss on settlement. NOTE:
o A settlement is a transaction that  Increase in PBO – actuarial loss
eliminates all further legal or  Decrease in PBO – actuarial gain
constructive obligations for part or all of b. Actuarial Return vs. Interest Income
the benefits provided under a defined – The return on plan assets, excluding amounts
benefit plan, other than a payment of included in net interest on the net defined
benefits to, or on behalf of, employees benefit liability (asset)
that is set out in the terms of the plan – The return on plan assets is interest,
and included in the actuarial dividends and other income derived from the
assumptions plan assets, together with realized and
c. Net interest on the net defined benefit liability unrealized gains or losses on the plan assets,
(asset) less:
– Net interest on the net defined benefit liability o Any costs of managing plan asset
(asset) is the change during the period in the o Any tax payable by the plan itself, other
net defined benefit liability (asset) that arises than tax included in the actuarial
from the passage of time assumptions used to measure the present
 Interest cost on Present value of the defined value of the defined benefit obligation
Benefit Obligation (PBO) NOTE:
– PBO, beg x Discount Rate  Actuarial return > Interest Income = gain
 Interest income on Fair Value of Plan Assets  Actuarial return < Interest Income = loss
(FVPA) c. Any change in the effect of the asset ceiling, excluding
– FVPA, beg x Discount Rate amounts included in net interest on the net defined
 Interest expense of Effect of Asset Ceiling liability (asset)
NOTE:
– EoAC, beg x Discount rate
 Increase of effect of AC – loss (less the
expense)
Employee benefit expense - PL
 Decrease of effect of AC – Gain (add the
Service cost
expense)
Current service cot xxx
Past service cost xxx Effect of Asset Ceiling
(Gain)/loss on settlement xxx xxx Change for the period in the effect of AC
Less: Interest expense on effect of AC
Net interest Remeasurement - OCI
Interest cost on PBO xxx Remeasurement on PBO (gain)/loss xxx
Interest income on FVPA (xxx) Remeasurement on FVPA (gain)/loss xxx
Interest expense on Effect of asset ceiling xxx xxx Remeasurement on effect of asset ceiling
xxx
(gain)/loss
Employee benefit expense xxx
Remeasurement gain/loss xxx
PRO-FORMA ENTRY
PRO-FORMA ENTRIES
To recognize employee benefit expense
To recognize remeasurements
Benefit expense xxx
LOSS
Accrued benefit expense/Salaries payable xxx
Remeasurement loss xxx
P/A benefit expense xxx
STEP 2: GAIN
– Determining the remeasurements of the net defined P/A benefit expense xxx
Remeasurement gain xxx
benefit liability (asset), to be recognized in other
comprehensive income, comprising: Defined Benefit Cost
a. Actuarial gain/loss Employee benefit expense (from STEP 1) xxx
Remeasurements – OCI (gain)/loss (from STEP 2) xxx
TOTAL xxx

AUGUSTE ANTHONY U. SISPEREZ Page | 2

 CODE INTERMEDIATE ACCOUNTING – 3
591
school: UNIVERSITY OF SAINT LOUIS – TUGUEGARAO
department: SCHOOL OF ACCOUNTANCY BUSINESS & HOSPITALITY

STEP 3:
– Determining the deficit or surplus
– Comparison of PBO and FVPA

Computation for deficit or surplus

Present Value of Defined Benefit Obligation
Less: Fair Value of Plan Assets
= Deficit or (surplus)

Present value of defined benefit obligation

– Is the present value, without deducting any plan assets,
of expected future payments required to settle the
obligation resulting from employee service in the
current and prior periods.
– The PV is determines by using an actuarial technique
(project unit credit method) to estimate the ultimate cost
to the entity of the benefits the employees had earned in
return for service in the current and prior periods
– Key inputs into this process include estimating future
salary costs, employee turnover, projecting future
mortality rate and the discount rate

Computation for Annual Pension

ANNUAL PENSION = HIGHEST SALARY x BENEFIT RATE x SERVICE YEAR

Plan Assets
– Assets held by a long-term employee benefit fund
– These are assets that:
a. Are held by an entity that is legally separate from
the reporting entity and exists solely to pay or fund
employee benefits; and
b. Are available to be used only to pay or fund
employee benefits, are not available to the
reporting entity’s own creditors, and cannot be
returned to the reporting entity

Qualifying insurance policies

– It is an insurance policy issued by an insurer that is not a
related party, if the proceeds of the policy:
a. Can be used only to pay or fund employee benefits
under a defined benefit plan and;
b. Are not available to the reporting entity’s own
creditors and cannot be paid to the reporting entity

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