IAS 19 EMPLOYEE BENEFITS

OBJECTIVE

The objective of this Standard is to prescribe the accounting and disclosure for employee benefits.

SCOPE

Employee benefits include:

• Short-term employee benefits
• Post-employment benefits (c) Other long-term employee benefits (d) Termination benefits.

IAS 19 should be applied by all entities in accounting for the provision of all employee benefits, except those benefits which are equity-based (awarding shares, share appreciation rights etc) and to which IFRS 2 applies. The Standard applies regardless of whether the benefits have been provided as part of a formal contract or an informal arrangement (constructive obligation).

Considerations given to an employee by an entity in exchange for the employee’s services is in following forms.

1. Cash bonuses
2. Retirement benefits

• Private health care

A number of accounting issues arise due to actuarial complexities and the impact of deferred taxes:

• The valuation problems linked to some forms of employee benefits; and
• The timing of benefits, which may not always be provided in the same period as the one in which the employee’s services are provided.

DEFINITIONS

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

Post-employment benefits are employee benefits (other than termination benefits and short-term employee benefits) that are payable after the completion of employment.

Other long-term employee benefits are all employee benefits other than short-term employee benefits, post-employment benefits and termination benefits.

Termination benefits are employee benefits provided in exchange for the termination of an employee‘s employment as a result of either:

• An entity‘s decision to terminate an employee‘s employment before the normal retirement date; or
• An employee‘s decision to accept an offer of benefits in exchange for the termination of employment.

 

Investment risk: This is defined as the risk that there will be insufficient funds in the plan to meet the expected benefits.

Actuarial risk: This is the risk that the actuarial assumptions such as those on employee turnover, life expectancy or future salaries vary significantly from that actually happens.

SHORT TERM EMPLOYEE BENEFITS

Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service and expense is recognized on accrual basis..

Short-term employee benefits include items such as:

• Wages, salaries and social security contributions;
• Short-term compensated absences (such as paid annual vacation, paid sick leave and paid maternity/paternity leave. To fall within the definition, the absences should be expected to occur within 12 months of the end of the period in which the employee services were provided;
• Profit-sharing and bonuses payable within 12 months of the end of the period
• Non-monetary benefits (such as medical care, housing, cars and free or subsidized goods or services) for current employees.

Recognition and Measurement: All Short Term Employee Benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the service during the period is recognized as:

• as a liability (accrued expense), after deducting any amount already paid (As an asset if prepaid expense)
• As an expense, unless another IFRS requires or permits the inclusion of the benefits in the cost of an asset.

Short Term Compensated Absences

Definition

Short-term compensated absences: Compensated absences are periods of absence from work for which the employee receives some form of payment and which are expected to occur within 12 months of the end of the period in which the employee renders the services.

Examples of short-term compensated absences are paid annual vacation and paid sick leave.

Short-term compensated absences fall into two categories:

• Accumulating absences. These are benefits, such as paid annual vacation, that accrue over an employee‘s period of service and can be potentially carried forward and used in future periods if not taken: and
• Non-accumulating absences. These are benefits that an employee is entitled to, but they elapse if not taken in the current period. Where an employee has an unused entitlement at the end of the reporting period and the entity expects to provide the benefit, a liability should be created.

Profit-sharing and bonus plans

An entity should recognise an expense and a corresponding liability for the cost of providing profitsharing arrangements and bonus payments when:

(i) The entity has a present legal or constructive obligation. The legal obligation arises when payment is part of an employee’s employment contract. The constructive obligation arises where past performance has led to the expectation that benefits will be payable in the current period. (ii) A reliable estimate of the obligation can be made.

Conditions may be attached to such bonus payments; commonly, the employee must still be in the entity’s employment when the bonus becomes payable. An estimate should be made based on the expectation of the level of bonuses that will ultimately be paid. IAS 19 sets out that a reliable estimate for bonus or profitsharing arrangements can be made only when:

• There are formal terms setting out determination of the amount of the benefit:
• The amount payable is determined by the entity before the financial statements are authorised for issue; or
• Past practice provides clear evidence of the amount of a constructive obligation.

POST-EMPLOYMENT BENEFITS

Post-employment benefits are employee benefits other than termination benefits, which are payable after the completion of employment.

Post-employment benefits include, for example:

• Retirement benefits, such as pensions; and
• Other post-employment benefits, such as post-employment life insurance and post-employment medical care.

Post-employment benefit plans are formal or informal arrangements under which an entity provides postemployment benefits for one or more employees.

There are two main types of post-employment benefit schemes:

o Defined contribution schemes where the future pension depends on the value of the fund o Defined benefit schemes where the future pension depends on the final salary and years worked

These two alternative schemes are discussed in more detail below.

A pension scheme will normally be held in the form of a trust (pension fund) separate from the sponsoring employer. Although the directors of the sponsoring company may also be trustees of the pension scheme, the sponsoring company and the pension scheme are separate legal entities that are accounted for separately. IAS 19 covers accounting for the pension scheme in the sponsoring company’s accounts.

Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Defined benefit plans are post-employment benefit plans other than defined contribution plans.

Multi-employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that:

• Pool the assets contributed by various entities that are not under common control; and
• Use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees.

DEFINED CONTRIBUTION PLANS

Characteristics of a defined contribution plan are:

• Contributions into the plan are fixed, normally at a percentage of an employee‘s salary
• The amount of pension paid to retirees is not guaranteed and will depend upon the size of the plan, which in turn depends upon the performance of the pension fund investments.

Risk Associated with Defined Contribution Schemes

Contributions are usually paid into the plan by both the employer and the employee. The expectation is that the investments made will grow through capital appreciation and the reinvestment of returns and that on a member‘s retirement, the plan should have grown to be sufficient to provide the anticipated benefits. If the investments have not performed as anticipated (Investment risk), the size of the plan will be smaller than initially anticipated and therefore there will be insufficient assets to meet the expected benefits. The insufficiency of assets is described as the investment risk and is carried by the employee.

The other main risk with retirement plans is that a given amount of annual benefit will cost more than expected if, for example, life expectancy has increased markedly by the time benefits come to be drawn. So, the actuarial assumptions regarding pension may deviate from actual results (Actuarial risk) e.g. employee turnover, average age of employees etc.  This is described as the actuarial and, in the case of defined contribution plans, this is also carried by the employee.

Variables-returns on investments

Accounting for defined contribution plans is straightforward as the obligation is determined by the amount paid into the plan in each period.

Recognition and measurement

Contributions into a defined contribution plan by an employer are made in return for services provided by an employee during the period. The employer has no further obligation for the value of the assets of the plan or the benefits payable.

• The entity should recognise contributions payable as an expense in the period in which the employee provides services (except to the extent that labour costs may be included within the cost of assets).
• A liability should be recognised where contributions arise in relation to an employee’s service, but remain unpaid at the period end.

In the unusual situation where contributions are not payable during the period (or within 12 months of the end of the period) in which the employee provides his or her services on which they accrue, the amount recognised should be discounted, to reflect the time value of money.

Any excess contributions paid should be recognised as an asset (prepaid expenses) but only to the extent that the prepayment will lead to a reduction in future payments or cash refund.

Disclosure requirements

Where an entity operates a defined contribution plan during the period, it should disclose:

• The amount that has been recognised as an expense during the period in relation in relation to the plan
• A description of the plan

DEFINED BENEFIT PLANS

These are defined by IAS 19 as all post-employment plans other than defined contribution plans.

These are defined by IAS 19 as all plans other than defined contribution plans.

Characteristics of defined benefit plan are:

• The amount of pension paid to retirees is defined by reference to factors such as length of service and salary levels (i.e. it is guaranteed)
• Contributions into the plan are therefore variable depending upon how the plan is performing in relation to the expected future obligation (i.e. if there is a shortfall, contribution will increase and vice versa)

Contribution Levels

The actuary advises the company on contributions necessary to produce the defined benefits (‗the funding plan‘). Contributions may be varied as a result.

 

 

Risk associated with defined benefit schemes

As the employer is obliged to make up any shortfall in the plan, it is effectively underwriting the investment and actuarial risk associated with the plan. Thus in a defined benefit plan, the employer carries both the investment and the actuarial risk.

Types of Defined Benefit Plans

There are two types of defined benefit plan:

• Funded plans: These plans are set up as separate legal entities and are managed independently, often by trustees. Contributions paid by the employer and employee are paid into the separate legal entity. The assets held within the separate legal entities are effectively ring-fenced for the payments of benefits. Illustration:

Unfunded plans: These plans are held within employer legal entities and are managed by the employers‘ management teams. Assets may be allocated towards the satisfaction of retirement benefit obligations, although these assets are not ring-fenced for the payment of benefits and remain the assets of the employer entity.

 

DEFINITIONS RELATING TO THE NET DEFINED BENEFIT LIABILITY (ASSET) The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The deficit or surplus is: (a) The present value of the defined benefit obligation less (b) The fair value of plan assets (if any). The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The present value of a 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. Plan assets comprise: (a) Assets held by a long-term employee benefit fund; and (b) Qualifying insurance policies. Assets held by a long-term employee benefit fund are assets (other than non-transferable financial instruments issued by the reporting entity) that: (a)  Are held by an entity (a fund) 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 (even in bankruptcy), and cannot be returned to the reporting entity, unless either: (i)     the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or (ii)   the assets are returned to the reporting entity to reimburse it for employee benefits already paid.   A qualifying insurance policy is an insurance policy11issued by an insurer that is not a related party (as defined in IAS 24 Related Party Disclosures) of the reporting entity, 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 (even in bankruptcy) and cannot be paid to the reporting entity, unless either: (i)     the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations; or (ii)   The proceeds are returned to the reporting entity to reimburse it for employee benefits already paid.

DEFINITIONS RELATING TO DEFINED BENEFIT COST Service cost comprises: (a)  Current service cost, which is the increase in the present value of the defined benefit obligation resulting from employee service in the current period; (b)  Past service cost, which is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting from a plan amendment (the introduction or withdrawal of, or changes to, a defined benefit plan) or a curtailment (a significant reduction by the entity in the number of employees covered by a plan); and (c) Any gain or loss on settlement. Net interest on the net defined benefit liability (asset) is the change during the period in the net defined benefit liability (asset) that arises from the passage of time. Remeasurement of the net defined benefit liability (asset) comprise: (a) Actuarial gains and losses; (b)  The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and 1 A qualifying insurance policy is not necessarily an insurance contract, as defined in IFRS 4 Insurance Contracts. (c)  Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from: (a)  experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and (b)  The effects of changes in actuarial assumptions. The return on plan assets is interest, dividends and other income derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less: (a)  any costs of managing plan assets; and (b)  Any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the present value of the defined benefit obligation. A settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan, other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial assumptions.

RECOGNITION AND MEASUREMENT – A SUMMARY

IAS 19 requires the following.

• Contributions to a defined contribution plan should be recognised as an expense in the period they are payable (except to the extent that labour costs may be included within the cost of assets).
• Any liability for unpaid contributions that are due as at the end of the period should be recognized as a liability (accrued expense).
• Any excess contributions paid should be recognised as an asset (prepaid expense), but only to the extent that the prepayment will lead to, e.g. a reduction in future payments or a cash refund.

In the (unusual) situation where contributions to a defined contribution plan do not fall due entirely within 12 months after the end of the period in which the employees performed the related service, then these should be discounted.

RECOGNITION AND MEASUREMENT – DETAILS

Accounting by an entity for defined benefit plans involves the following steps:

• Determining the deficit or surplus. This involves:
  • Using an actuarial technique, the projected unit credit method is used to make a reliable estimate of the ultimate cost to the entity of the benefit using estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs).
  • Calculating the present value of the defined benefit obligation and the current service cost
  • Deducting the fair value of any plan assets from the present value of the defined benefit obligation.
• Determining the amount of the net defined benefit liability (asset) as the amount of the deficit or surplus determined in (a), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.
• Determining amounts to be recognised in profit or loss:
  • Current service cost.
  • Any past service cost and gain or loss on settlement.
  • Net interest on the net defined benefit liability (asset).
• Determining the remeasurements of the net defined benefit liability (asset), to be recognised in other comprehensive income, comprising:
  • Actuarial gains and losses;
  • Return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
  • Any change in the effect of the asset ceiling , excluding amounts included in net interest on the net defined benefit liability (asset).

Accounting For the Constructive Obligation

An entity shall account for any constructive obligation also that arises from the entity‘s informal practices.

The Statement of Financial Position

In the statement of financial position, the amount recognised as a defined benefit liability (which may be a negative amount, i.e. an asset) should be the following.

• The present value of the defined obligation at the year end, minus
• The fair value of the assets of the plan as at the yearend (if there are any) out of which the future obligations to current and past employees will be directly settled.

Recognition and Measurement: Present Value of Defined Benefit Obligation and Current Service Cost

The ultimate cost of a defined benefit plan may be influenced by many variables, such as final salaries, employee turnover and mortality, employee contributions and medical cost trends. The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a long period of time. In order to measure the present value of the post-employment benefit obligations and the related current service cost, it is necessary:

(a) To apply an actuarial valuation method; (b) To attribute benefit to periods of service; and (c)To make actuarial assumptions.

Attributing benefits to periods of service

• Where a plan provides for a lump sum benefit payment at a specified time in the future, IAS 19 requires that the benefits are attributed to periods of service on a straight line basis over the period in which the benefit accrues.
• Benefits accruing in later periods may be greater than those accruing in earlier periods. Where this is the case, IAS 19 again requires benefits to be attributed to periods of service on a straight line basis over the period in which the benefit accrues.
• If the benefit is to be based on a constant proportion of final salary for each year of service, the amount of benefit attributable to each period of service is a constant proportion of the estimated final salary.

The Statement of Profit or Loss and Other Comprehensive Income

All of the gains and losses that affect the plan obligation and plan asset must be recognised. The components of defined benefit cost must be recognised as follows in the statement of profit or loss and other comprehensive income:

Component                                                                                                Recognised in

• Service cost                                                                                          Profit or loss
• Net interest on the net defined benefit liability                          Profit or loss
• Remeasurements of the net defined benefit liability                 Other comprehensive income (not

reclassified to P/L

Unwinding of Interest

IAS 19 requires that the interest should be calculated on the net defined benefit liability (asset). This means that the amount recognised in profit or loss is the net of the interest charge on the obligation and the interest income recognised on the assets.

The calculation is as follows:

Net defined benefit liability/(asset)                              x            Discount Rate

The net defined benefit liability/(asset) should be determined as at the start of the accounting period, taking account of changes during the period as a result of contributions paid into the scheme and benefits paid out.

Discount Rate

The discount rate adopted should be determined by reference to market yields on high quality fixedrate corporate bonds.

Dr.         Interest cost

Cr.         PV of defined benefit obligation

Service Costs

These comprise:

• Current service cost, this is the increase in the present value of the defined benefit obligation resulting from employee services during the period.
• Past service cost, is the change in the obligation relating to service in prior periods. This results from amendments or curtailments to the pension plan, and (c) Any gain or loss on settlement.

 

Current Service Cost

The amount of pension paid out by defined benefit schemes is often calculated based on the number of years of service of an employee. Therefore, with each year that an employee remains in employment, the pension liability will increase.

The current service cost is accounted for by 

Dr.         Current service cost expense

Cr.         PV of Defined Benefit Obligation

Past Service Costs 

Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment.

An entity shall recognise past service cost as an expense at the earlier of the following dates:

• When the plan amendment or curtailment occurs; and
• When the entity recognises related restructuring costs (see IAS 37) or termination benefits.

A plan amendment occurs when an entity introduces, or withdraws, a defined benefit plan or changes the benefits payable under an existing defined benefit plan.

A curtailment occurs when an entity significantly reduces the number of employees covered by a plan. A curtailment may arise from an isolated event, such as the closing of a plant, discontinuance of an operation or termination or suspension of a plan.

Where an entity reduces benefits payable under an existing defined benefit plan and, at the same time, increases other benefits payable under the plan for the same employees, the entity treats the change as a single net change.

Gains and Losses on Settlement

The gain or loss on a settlement is the difference between:

• The present value of the defined benefit obligation being settled, as determined on the date of settlement; and
• The settlement price, including any plan assets transferred and any payments made directly by the entity in connection with the settlement.

An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs.

RECOGNITION AND MEASUREMENT: PLAN ASSETS

Fair Value of Plan Assets

Plan assets are:

• Assets such as stocks and shares, held by a fund that is legally separate from the reporting entity, which exists solely to pay employee benefits.
• Insurance policies, issued by an insurer that is not a related party, the proceeds of which can only be used to pay employee benefits.

Points to Remember

1. The fair value of any plan assets is deducted from the present value of the defined benefit obligation in determining the deficit or surplus.
2. When no market price is available, the fair value of plan assets is estimated, for example, by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligation).
3. Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well as any non-transferable financial instruments issued by the entity and held by the fund.
4. Plan assets are reduced by any liabilities of the fund that do not relate to employee benefits, for example, trade and other payables and liabilities resulting from derivative financial instruments.

Retirement Benefits Paid Out  

During an accounting year, some of the plan assets will be paid out to retirees, thus discharging part of the benefit obligation. This is accounted for by:

Dr          PV of defined benefit obligation                 X

CR          FV of plan assets                                                                          X

There is no cash entry as the pension plan itself rather than the sponsoring employer pays money out.

Contributions Paid Into Plan

Contributions will be made into the plan as advised by the actuary. This is accounted for by:

DR         FV of plan assets                                            X

CR          Cash                                                                                                X

Remeasurements of the net defined benefit liability (asset)

Remeasurements of the net defined benefit liability (asset) comprise:

• Actuarial gains and losses;
• The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
• Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

Return on Plan Assets

In determining the return on plan assets, an entity deducts the costs of managing the plan assets (except other administration costs) and any tax payable by the plan itself

Exam Focus

The opening and closing obligation and plan assets can be reconciled as follows:

	PV of defined benefit obligation $	FV of plan assets $
B/f at start of year (advised by actuary)	(X)	X
Retirement benefits paid out	X	(X)
Contributions paid into plan		X
Expected return on plan assets		X
Unwinding of interest	(X)
Current service cost	(X)	____
	(X)	X
Remeasurement gains / losses (Balancing figure)	X(X)	X(X)
C/f at end of year (advised by actuary)	(X)	X

Asset Ceiling Test

When we looked at the recognition of the net defined benefit liability/(asset) in the statement of financial position stated above, the term ‗asset ceiling‘ was mentioned.

This term relates to a threshold established by IAS 19 to ensure that any defined benefit asset (i.e. a pension surplus) is carried at no more than its recoverable amount. In simple terms, this means that any net asset is restricted to the amount of cash savings that will be available to the entity in future.

Net Defined Benefit Assets

A net defined benefit asset may arise if the plan has been overfunded or if actuarial gains have arisen. This meets the definition of an asset ( as stated in the Framework) because all of the following apply.

• The entity controls a resource (the ability to use the surplus to generate future benefits).
• That control is the result of past events (contributions paid by the entity and service rendered by the employee).
• Future benefits are available to the entity in the form of a reduction in future contributions or a cash refund, either directly or indirectly to another plan in deficit.

The asset ceiling is the present value of those future benefits. The discount rate used is the same as that used to calculate the net interest on the net defined benefit liability/(asset). The net defined benefit asset would be reduced to the asset ceiling threshold.

Any related write down would be treated as a remeasurement and recognised in other comprehensive income.

If the asset ceiling adjustment was needed in a subsequent year, the changes in its value would be treated as follows:

• Interest (as it is a discounted amount) recognised in profit or loss as prat of the net interst amount
• Other changes recognised in profit or loss.

Suggested approach and question

The suggested approach to defined benefit schemes is to deal with the change in the obligation and asset in the following order.

Step

Item

Recognition

• Record opening figures:
  • Asset
  • Obligation
• Interest cost on obligation DEBIT Interest cost (P/L) 
  • Based on discount rate and PV                               (x% x b/d obligation) obligation at start of period.               CREDIT              PV defined benefit obligation (SOFP)
  • Should also reflect any changes in obligation during period.
• Interest on plan assets DEBIT  Plan assets (SOFP)
  • Based on discount rate and asset value CREDIT              Interest cost (P/L)  at start of period.                                   (x% x b/d assets)
  • Technically, this interest is also time apportioned on contributions less benefits paid in the period.
• Current service cost DEBIT                 Current service cost (P/L)
  • Increase in the present value of the CREDIT              PV defined benefit obligation (SOFP) obligation resulting from employee service in the current period.

 

• Contributions DEBIT  Plan assets (SOFP)
  • As advised by actuary CREDIT              Company cash

 

• Benefits DEBIT  PV defined benefit obligation (SOFP)
  • Actual pension payments made CREDIT              Plan assets (SOFP)

 

• Past service cost
  • Increase/decrease in PV obligation as a result of introduction or improvement of benefits.

 

Positive (increase ii obligation):

DEBIT                  Past service cost (P/L)

CREDIT    PV defined benefit obligation (SOFP) Negative (decrease in obligation:

DEBIT                  PV defined benefit obligation (SOFP)

CREDIT              Past service cost (P/L)

 

 

• Gains and losses on settlement Gain
  • Difference between the value of the DEBIT            PV defined benefit obligation (SOFP) obligation being settled and the    CREDIT              Service cost (P/L)

settlement price                                               Loss

DEBIT                  Service cost (P/L)

CREDIT                       PV defined benefit obligation (SOFP)

• Remeasurements: actuarial gains and Gain

losses                                                                       DEBIT                          PV defined benefit obligation (SOFP)

• Arising from annual valuations of CREDIT              Other comprehensive income (P/L)      Loss
• On obligation, differences between DEBIT            Other comprehensive income (P/L)  actuarial assumptions and actual         CREDIT              PV defined benefit obligation (SOFP) experience during the period, or changes in actuarial assumptions.

• Remeasurements: return on assets Gain
  • Arising from annual valuations of plan DEBIT                 FV plan assets (SOFP)

assets                                                                 CREDIT                Other comprehensive income (P/L)

Loss

DEBIT                   Other comprehensive income (P/L) 

CREDIT                   FV plan assets (SOFP) Other Long Term Benefits

Other long-term employee benefits include, for example:

• Long-term compensated absences such as long-service or sabbatical leave;
• Jubilee or other long-service benefits;
• Long-term disability benefits;
• Profit-sharing and bonuses payable twelve months or more after the end of the period in which the employees render the related service; and
• Deferred compensation paid twelve months or more after the end of the period in which it is earned.

Recognition and Measurement: Other Long Term Benefits

There are many similarities between these types of benefits and defined benefit pensions. For example, in a long-term bonus scheme, the employees may provide service over a number of periods to earn their entitlement to a payment at a later date. In some case, the entity may put cash aside, or invest it in some way (perhaps by taking out an insurance policy) to meet the liabilities when they arise.

As there is normally far less uncertainty relating to the measurement of these benefits, IAS 19 requires a simpler method of accounting for them. Unlike the accounting method for post-employment benefits, this method does not recognise remeasurements in other comprehensive income.

The entity should recognise all of the following in profit or loss.

• Service cost
• Net interest on the defined benefit liability (asset)
• Remeasurement of the defined benefit liability (asset)