Deegan5e Sm Ch13

8/20/2019 Deegan5e Sm Ch13

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Chapter 13

Accounting for employee benefits

13.1 According to AASB 119 ‘Employee Benefits’, employee benefits means all forms of consideration given by an entity in excange for services rendered by employees. Employee benefits !o"ld incl"de, b"t !o"ld not be limited to, !ages and salaries #incl"ding fringe benefits and non$monetary benefits%, ann"al leave, sic& leave, long service leave,s"perann"ation and oter post$employment benefits.

13.' AASB 119 re("ires tat sort$term employee benefit obligations be meas"red on an"ndisco"nted basis. Sort$term employee benefits co"ld incl"de !ages, salaries, socialsec"rity contrib"tions, sort$term compensated absences, profits saring and bon"ses payable!itin 1' monts.

)bligations for employee benefits, incl"sive of salary and !ages, tat are payable beyond 1'monts after balance seet date are to be recorded at teir present val"e. *or te p"rpose of determining present val"es, te disco"nt rate is to be based on mar&et yields at te reportingdate of ig ("ality corporate bonds. +e c"rrency and terms of te bonds are to beconsistent !it te c"rrent and estimated term of te obligations.

ile paragrap - of AASB 119 states tat reference so"ld be made to ig ("alitycorporate bonds, it also states tat !ere tere is no deep mar&et in s"c bonds, te mar&etyields on government bonds sall be "sed. itin A"stralia, it is te vie! of te standard$setters tat !e do not ave a s"fficiently active and li("id mar&et for ig ("ality corporate

bonds. it tis in mind, paragrap A"s-.1 states/

0n applying te re("irement of paragrap -, A"stralia does not ave a s"fficientlyactive and li("id mar&et for ig ("ality corporate bonds. Accordingly, mar&et yieldson government bonds sall be "sed to disco"nt post$employment benefit obligationsdenominated in A"stralian c"rrency.

13.3 +e rates on ig ("ality corporate bonds sall be "sed to disco"nt employee benefitobligations payable beyond 1' monts after balance seet date !en tere is active and li("idmar&et in ig ("ality corporate bonds.

13. 2overnment bond rates sall be "sed to disco"nt employee benefit obligations payable

beyond 1' monts after balance seet date !en tere is no deep #active and li("id% mar&etin ig ("ality corporate bonds. A"stralia is deemed not to ave a ‘deep mar&et’ ence !eare re("ired to "se government bond rates !en calc"lating present val"es.

13. At iss"e ere is !eter !e can really arg"e tat tey are present val"es if te disco"nting isdone by applying a rate tat relates to te bonds of oter corporations, rater tan temar&et$determined ris&$ad4"sted rate for te specific entity. 5oncept"ally, applying ig("ality corporate bond rates #or applying government bonds rates !ere no ‘deep mar&et’exists !itin a co"ntry for corporate bonds% does not provide present val"es. 6o!ever,determining organisation$specific rates is a diffic"lt tas& !ic involves a great deal of

professional 4"dgement. it tis in mind, AASB 119 re("ires tat present values be

determined by applying ig ("ality corporate bond rates #or government bond rates%. +is!o"ld be an easier #and less costly% approac to determining te val"e of te f"t"re casflo!s and it !o"ld eliminate te need for a great deal of professional 4"dgement #alto"g, of

Sol"tions 7an"al t8a Australian Financial Accounting 8e by 5raig eegan 13:1


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co"rse, tere is still m"c 4"dgement necessary to calc"late te "ndisco"nted val"e of tef"t"re cas flo!s pertaining to te employee benefits%. +e reg"lators m"st believe tat tecosts associated !it determining organisational$specific rates are greater tan te associated

benefits.

13.; +e follo!ing employee benefits are to be disclosed at teir nominal amo"nts/ employee benefits in te form of !ages and salaries, ann"al leave, sic& leave and oter employee benefits !ic are expected to be settled !itin t!elve monts of te reporting date. Allemployee benefits to be settled beyond 1' monts after balance seet date are to be meas"redat te present val"e of te estimated cas o"tflo!s to be made by te employer in respect of employee services rendered "p to te reporting date.

13.- +e general principle !o"ld be tat !ere te payments are expected to generate f"t"re benefits !ic can be reliably meas"red ten te payments made to employees can beconsidered to constit"te an asset. *or example, consider amo"nts d"e to employees !or&ingon te prod"ction of partic"lar items of inventory tat !ill s"bse("ently be sold, tereby

providing f"t"re economic benefits for te employer. +e salaries and !ages in s"c cases!o"ld initially be recorded as part of !or& in progress. +ey !o"ld ten be transferred tofinised goods and "ltimately !o"ld become an expense in te form of cost of goods sold. AsAASB 1


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te incl"sion of te benefits in te cost of an asset #see, for example, AASB 1


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#d% determining te total amo"nt of act"arial gains and losses.

13.1< 0f "n"sed entitlements to sic& leave are to be paid o"t !en te employee leaves teorganisation ten tese sic& leave entitlements are generally referred to as vesting sic& leaveentitlements. 0f te entitlements contin"e to accr"e as te employee contin"es to !or& for te

employer, ten te acco"nting treatment is te same as tat "sed to acco"nt for ann"al leave.A liability !ill be recognised !ic !ill not be dependent "pon assigning probabilities to teli&eliood tat te employee !ill act"ally ta&e te leave.

0f sic& leave is considered to be non$vesting, entitlements !ill only be paid !en teemployee is sic&, and tey !ill not be paid o"t !en te employee ceases employment. *or non$vesting sic& leave, acco"nting entries m"st be made !ic recognise te employees’entitlements to sic& leave based on past service, and te probability tat te sic& leave !illact"ally be ta&en. *or example, if an individ"al employee on a salary of 1


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of service necessary to ("alify for te entitlement. 0f te employee leaves in tis early period, no long$service leave entitlement is re("ired to be paid by te employer.

#b% 5onditional period

0n certain circ"mstances a legal entitlement to pro$rata payment in lie" of long$serviceleave arises after a conditional period of service as been completed. *or example, teemployment agreement may provide tat employees are entitled to ta&e 13 !ee&sleave after 1 years of service. +e agreement may f"rter provide tat once aconditional period of employment as been served, for example, 1< years, ten teemployee is entitled to a pro$rata cas payment in relation to long$service leave. 0ns"c an arrangement, an employee !o as served nine years before resignation!o"ld not be entitled to any cas payment. An employee !o serves 11 years may not

be entitled to ta&e leave, b"t !o"ld be entitled to 9.3 !ee&s salary on resignation#!ic e("als 1181 m"ltiplied by 13 !ee&s%.

#c% @nconditional period

An "nconditional legal entitlement to payment arises after a ("alifying period of service #"s"ally 1< or 1 years%. After tis ("alifying period, te long$service leavecan be ta&en. Acc"m"lation of long$service leave entitlement contin"es after tis

point, "ntil te leave is ta&en.

An employer so"ld not defer recognition of long$service leave entitlements "ntil a pre$conditional period as been served. ater, "sing vario"s act"arial ass"mptions #s"c as

probabilities tat te employee !ill stay "ntil at least te conditional period, pro4ected promotions, !ages rates, and so on%, a liability so"ld be recognised tro"go"t te term of

employment, starting from te first year of service.

13.1 #a% +e acco"nting entry at balance date to recognise eigt days salary and !agesexpense !o"ld be #tis ass"mes a ten day !or&ing !ee&, of !ic days remain"npaid at balance date%/

Sol"tions 7an"al t8a Australian Financial Accounting 8e by 5raig eegan 13:


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3< F"ne

r ages and salaries expense ' AG2 tax payable 1'


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Cigtning Bolt Ctd !o"ld also need to provide te "s"al !ee&ly ann"al leave 4o"rnalentry, even !en CopeH is on olidays. +at is/

r Ann"al leave expense 1-5r >rovision for ann"al leave 1-

13.1;

Gears of service

5"rrentsalary Do.

Salary xn"mber ofemployees 0nflation

D tomat"rity >ro4. sal. Entitlement >= >rob. CSC prov’n

; yrs <


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Dotes

1. +e pro4ected salary is determined by te follo!ing calc"lation/

5"rrent salary x #1 J inflation rate%n, !ere n n"mber of years "ntil te long serviceleave entitlement vests. 0n tis ("estion it is ass"med tat te inflation rate !ill

contin"e to be 'I. *or te first listed employee, te calc"lation !o"ld be <


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Deegan5e Sm Ch13

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