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Employee benefits

8 important questions on Employee benefits

Short-term employee benefits

Short-term employee benefits are expected to be settled wholly within1 year after the end of the annual reporting period in which the employees renders the service. These benefits can also include fringe benefits. The payroll also presents short-term employee benefits.

Non-accumulated paid absences

Non-accumulated paid absences do not carry forwards to future periods

Accumulating paid absences

Employees may carry this paid absence leave forward to future periods if it is unused in the current period

Accounting for defined contribution plan

Entities make payments to the DC plan. The amounts are some percentage of remuneration paid to the employees. Contributions payable to defined funds are recognised in the period the employee renders services and are recognised as an expense. Should this amount be less than needed, a liability for unpaid contributions must be recognised at the end of the period - these are due within 12 month. Should the entity have paid more than needed, this amount can be recognised as an asset - entitled to a refund or reductions on future contributions.

Journal entry deficit

Wages and salaries expense 40.000
Pension contributions payable 40.000

Accounting for defined benefit plans

In a defined benefit plan, the employer pays contributions to a plan that is a separate entity. This entity accumulates assets through contributions and returns on investments. These accumulated assets are then used to pay post-employment benefits. However, thesis assets do not always equal the obligations - there is a deficit to the extent that the present value of the defined benefit obligation exceeds the fair value of the plan assets. There is a surplus when the fair value of the plan assets exceeds the present value of the defined benefit obligation.

Key steps involved in accounting by the employer for a DB plan

1. Determine the deficit or surplus of the plan
2. Determine the amount of deficit/surplus, adjusted for any effect of limiting a net-defined benefit assets to the asset ceiling
3. Determine the amounts to be recognised in profit or loss for current service cost, any past service cost and net interest expense/income on the net defined benefit liability
4. Determine the remeasurement of the net defined liability/asset to be recognised in OCI, which compromises actuarial gains and losses, return on plan assets, and any change in the effect of the asset ceiling.

Steps involved in measuring the liability for long service leave

1. Estimate the number of employees who are expected to become eligible for long service leave
2. Estimate the projected wages and salaries at the time that long service leave is expected to be paid
3. Determine the accumulated benefit
4. Measure the present value of the accumulated benefit

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Employee benefits

8 important questions on Employee benefits

Short-term employee benefits

Non-accumulated paid absences

Accumulating paid absences

Accounting for defined contribution plan

Journal entry deficit

Accounting for defined benefit plans

Key steps involved in accounting by the employer for a DB plan

Steps involved in measuring the liability for long service leave

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