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FRS 119: EMPLOYEE BENEFITS. Para 7 ~. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. OBJECTIVE. To prescribe actg & disclosure for employee Benefits. Specifically for entity to recognise :

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Para 7
Para 7 ~

Employee benefits are all forms of

consideration given by an entity in

exchange for service rendered by



To prescribe actg & disclosure for employee


Specifically for entity to recognise:

  • LIABILITY when employee has provided service in exchange for employee benefits to be paid in the future

  • EXPENSEwhen consumes the economic benefit arising from service provided by employee in exchange for employee benefits.

Para 3
Para 3 :

The employee benefits include those provided under:

  • Formal plans/ others bet entity and indvl, groups or representatives of employees

  • Legislative requirements/ industry arrange. such that entities required to contribute to national, state, industry or other multi-employer plans

  • Informal practices that give rise to constructive oblig.

    (no realistic alternative but to pay the benefits) Eg: Change in informal practices cause unacceptable damage to r/ship with employee

Para 4 7 4 categories of employee benefits
Para 4 & 7~ 4 Categories of Employee benefits:

(1)Short-term employee. Fall due within 12mths after end of period Nyee rendered the service.

Para 8 Eg

(a) Wages,

(b) Short-term compensated absences (paid annual and sick leave, maternity, vacation ~ Para 11),

(c)Profit sharing, bonus pay’ble,

(d)Non-monetary benefits (medical care,housing, subsidised gds/services)

(2)Post-employment benefits. Payable after completn of Nymentsuch as retirement benefits (pensions), post Nyment life insurance and medical care.


(3)Other long-term employee benefits such as long service-leave. Fall due > 12mths after end of period Nyee rendered the service

(4) Termination benefits are result of either:

  • Entity dec to terminate Nyee b4 normal retirement date

  • Employee dec to accept voluntary redundancy

    FRS 119 prescribed diff. req. for each benefit

Para 5
Para 5

  • Benefits provided to either employee or their dependents

  • These benefits can be directly paid to the employees and their dependents or paid to other parties such as insurance companies or clinics for medical benefit.

Para 8 23 short term employee benefits

  • Accounting treatment:

    (a) Straight forward,

    (b) NO actuarial assumptions to measure oblig or cost, i.e. no actuarial gain/loss

    (c) Oblign x measured on discount basis


    • When an employee has rendered service to an enterprise

    • Recognise as an EXPENSEin P&L

    • Recognise as a LIABILITY(accrued expense) if it is still unpaid


Para 11 – 16 :

Short-term compensated absences

Recognise expected cost :

  • Of accumulating compensated absences when service rendered by Nyeeentitl. of future compensated absences

  • Of Non-accumulating compensated absences when absences occur


Para 17 -22

Profit Sharing and Bonus Plans

Recognise expected costs of ~ only when:

  • Entity has present legal or constructive oblig (no alternative but to make the payments)

  • Reliable estimate of obligatn can be made


Para 18: Some profit-sharing plans, employees receive a share of profit if remain for specified period, giving rise to constructive obligatn

Eg : A profit sharing plan requires entity to pay specified proportn of its profit for the yr to Nyees who serve throughout the yr. Assume, if NO Nyees leave during the yr, total profit sharing payments will be 3% of profit. Entity estimates staff turnover reduce the payments to 2.5% of profit.

To recognise liability and expense of 2.5% of profit


Para 23 ~ Disclosure of Short Term Benefits

FRS 119 x require specific disclosure, but others such as FRS 124 may require disclosure of Nyee benefits of key mgt personnel

Post employment benefits

  • Post Nyment Benefit Plans~ Arrange. to provide post Nyment benefits.

  • 2 types of paying Post Employment Benefit Plans:

    • Defined contribution plans; and

    • Defined benefit plan

      Where the two are differentiated by economic

      substance of the plans based on its terms & cond.

Defined contribution plans

  • Employer contribution is defined

  • The enterprise’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund

  • Example: EPF: employer must (mandatory) to contribute 12% to the fund

  • Amount to be paid as retirement benefits are determined by contributions to a fund together with investment earnings.

  • Employee is not guaranteed any specific amount that she/he will received.

Cont defined contribution plans
Cont.. Defined Contribution Plans

  • Potentially, fund is managed by the trustee, which is separated from the employer,

  • In form and in substance, the fund is separate from the employer

  • The third party trustee act on behalf of the employee

  • Any risk and benefits of gain are borne by the employee


Defined Contribution Plans

Para 25 ~

  • Legal /constructive oblig ltd to amt agreed to contribute to the fund

  • Hence, Amt received by Nyeedet. by amt entity contributed to the plans/insurance co + investment return arising frmcontributn

  • Actuarial risk (i.e. benefits less than expected) and Invest. Risk (Assets invested insufficient to meet expected benefits) bear by the Nyee

Para 26 defined contribution plans
Para 26: Defined Contribution Plans

Entity obligatn NOT ltd to amt contribute... WHEN

legal & constructive oblig exist.

  • A plan benefit formula x linked solely to contributed amt

  • A guarantee exist, through direct or indirect plan of specified return on contributn

  • Informal practices give rise to constructive oblign.

    Eg. History of former Nyee benefits to a/c for inflatn

Para 43 45 recognition accounting treatment
Para 43 – 45 RECOGNITION : Accounting treatment

  • Straightforward

  • To det. amt to be contributed for that period

  • NO actuarial assumptions required to measure oblg or expense; NO actuarial gain or loss

  • Oblign measured at undiscounted basis (except those x due in 12 mths after Nyee render services to use discount rate as specified in Para 78)


  • After Nyee has rendered services, recognisecontributnpay’ble to defined cont. plan as:

  • LIABILITY (accrued expense)

  • EXPENSE unless other Std permits inclusion of this amt in cost of an asset (FRS 102 : Inventories and FRS 116: PPE)


  • Recognized;

    • As current liability for amount not yet paid to the fund (trustee)

    • As an expense in Income Statement

  • Entry:

    (i) P&L:

    Dr. Retirement expense or staff cost xxx

    (ii) B/Sheet:

    Cr. Cash/Accrued liability xxx

Para 46 47 disclosure
Para 46 -47: DISCLOSURE

  • Disclose amt recogd as EXPENSE

  • WRT FRS 124 ~ Disclose info abt contribution to defined plans for key mgt personnel

Para 27 defined benefit plans
Para 27 ~ Defined Benefit Plans

(i) OBLIGATED to provide agreed benefits to current and former Nyees

(ii) Actuarial risk (Benefits cost > than expected) and Investment risk BORNE BY THE ENTITY

Defined benefit plans

  • Employees’ benefits are defined.

  • The plan specifies the benefits that the employees will received at the time of retirement.

    • Payment could be in lump-sum such as gratuity or periodic like pension.

  • The enterprise’s legal obligation is to provide the agreed benefits to current and former employees and to make sure that sufficient contribution is made.

  • Actuarial risk (benefit will cost more than expected) and investment risk are borne by the enterprise

Cont defined benefit plans
Cont..Defined Benefit Plans

  • The trustee act on behalf of the employer

  • In form, the trustee is a separate legal entity who manage the fund, but in substance the plan assets and the retirement liability belongs to the employer.

  • Amount to be paid as retirement benefits are determined by reference to a formula usually based on employees’ earnings and /or years of service.

  • The future funding is determined by accumulated assets in the fund

Steps to determine the benefit plans 51
Steps to determine the benefit plans;[51]

  • Actuarial techniques to estimate the amount of benefit that employees have earned in return of their service (current and prior period)

  • Discounting method to determine the PV of the defined benefit obligation and the current cost service

  • Determining the fair value of any plan asset

  • Determining the total amount of actuarial gains and losses and amount that should be recognised

  • Determining the past service cost

Recognition accounting treatment para 49 62
RECOGNITION: Accounting treatment (Para 49 -62)

  • Complex

  • Actuarial assumptions required to measure obligat. and the expense

  • Possibility of actuarial gains and loss

  • Oblig measured on discounted basis, settled in many yrs after Nyee render the service

Recognition accounting treatment
RECOGNITION: Accounting treatment

  • Expense should be recognized on an accrual basis by reference to the services of employees rendered or to be rendered

  • Two types of expenses/costs under Defined Benefit Plans

    • Current service cost and Past service cost

  • Entry:

    • Dt. Retirement benefit expense xxx

      • Cr. Defined benefit liability xxx

  • Any income received from the investment activity

    • Dt. Retirement benefit asset (plan assets) xxx

      • Cr. Defined benefit liability xxx

Disclosure para 120 125
Disclosure: Para 120 -125

  • Disclose info enables users of f/s to:

    (i) Evaluate nature of its defined benefit plans and

    (ii) Finl effect of changes in plans during the period

Post employment benefits1

  • Distinction between;

    • Funded VS. Unfunded Benefit Plans

    • Contributory VS. Non-Contributory Benefits Plans

    • Defined Contribution Plans VS. DefinedBenefit Plans

Funded vs unfunded benefit plans
Funded VS. Unfunded Benefit Plans

  • Funded;

    • The employer makes periodic payments (reduce cash a/c) or contribution to a separate funding agency which will administer the funds

    • Funding is a process making payment to the trustee.

  • Unfunded Benefit Plans;

    • No separate funding agency involved.

    • No cash outflow

    • Cost of retirement benefits and the related liability are accrued in the account

    • On retirement or termination of employment, the payment is made to employee and accrued liability account is reversed

Contributory vs non contributory benefits plans
Contributory VS. Non-Contributory Benefits Plans

  • Contributory

    • Employee contribute to the plans together with the employer.

    • Contribution is directly deducted from their salaries.

    • Example; EPF (12% Employer, 11% employee)

  • Non-Contributory

    • Contribution comes from employer only

Disclosure for unfunded benefit plans
Disclosure for unfunded benefit plans

  • Retirement benefit expense charged in income statement will comprise:

    • Current service cost

    • Interest cost

    • Actuarial gain or loss

    • Past service cost and

    • Gain or loss on settlement

  • Defined benefit liability in the Balance sheet:

    • Present value of defined benefit obligation and,

    • Fair value of the plan assets