IAS 19 Employee benefits

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Objectives and scope

Accounting and disclosure of

Short term Post

employee employment
benefits benefits

Other long term Termination

employee benefits benefits

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 Short term employee benefits

Examples

Definitio Accounting
n treatment

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 Definitions

Accumulatin
g
Short term
compensate
d absences

Non-
accumulating

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 Profit sharing and bonus plans

Legal or constructive obligation

Reliable estimate

Within 12 months

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 Post employment benefits

Defined Defined
contribution benefit
plans plans

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 Defined contribution plans

Accounting
Treatment

Expens
e when Disclosur
due e

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Post retirement benefits-defined benefit plans

Value on balance sheet

FV of scheme assets X
PV of liabilities (X)
Actuarial gains/losses not
yet recognised (X)/X
Past service costs not
yet recognised X
X
Components of change in value accounted for separately

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Determining the value of plan assets

Fair value?

Market price if No market

available price?
Use estimate

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 Benefits earned -
Projected Unit Credit Method

Example
A new employee has current salary of £50,000, expected to increase at a
rate of 4% per annum over the next 5 years. The employee is a member of the
firm’s defined benefit scheme, and is entitled to a lump sum on retirement
(expected to be in 5 years) of 2% of final salary for each year of service. A
discount rate of 5% is applied.

Calculate the obligation at the end of each year

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Calculations

Salary at end of year 5

£50,000 x 1.045=£60,833

Benefit attributable to each year

£60,833 x 2%=£1,217

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Calculations (continued)

Benefits attributable to years 1-5

Year 1 2 3 4 5

Benefit attributed to

- Prior years 0 1217 2434 3651 4868

- Current year 1217 1217 1217 1217 1217

Current and prior years 1217 2434 3651 4868 6085

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Calculations (continued)

Year 3
examplevalue of
Present £3,651 = £3,154
obligation at end of year 1.053

3
Present value of £2,434 = £2,208
1.052
obligation at end of year
2
Movement £946
Interest cost £110

Service cost £836

(balance)

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Recognition in the income statement

Current service cost

Interest cost
Expected return on plan assets
Actuarial gains and losses (to the extent they are
recognised)
Past service costs (to the extent they are recognised)

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Service cost

Current Past

Due to Due to change

employee in benefits
working extra
year

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 Interest Expected
cost return

Unwinding Use long

of discount term rate

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 Actuarial gains and losses

Experience adjustments

Changes in assumptions

Recognition

10% ‘corridor’

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Disclosure for defined benefit schemes

Accounting policy
Description of plan
Reconciliation of assets and liabilities in the balance sheet
Fair value of plan assets
Reconciliation of movement in liabilities
Breakdown of income statement expense
Actual return on plan assets
Actuarial assumptions

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Multi-employer plans

Defined benefit

Defined contribution

Disclosures

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Other long term employee benefits

Recognition
Examples and Disclosure
measuremen
t

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 Termination benefits

Obligation to pay

Demonstrably committed

Discounting

disclosure

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