1. Section 28 Employee Benefits

2. Employee Benefits
All forms of consideration given by the entity in exchange for
services rendered by the employees.
Short term - employee benefits other than termination benefits which are wholly due within twelve months after the end of the Period.
Termination Benefits are employee benefits payable as a result of;
Entity’s decision to terminate an employee’s employment
before the normal retirement date; or
An employee’s decision to accept voluntary redundancy in
exchange for those benefits.

3. Employee benefits
Post Employment benefits which are benefits (other than
short-term & post-termination benefits) that are payable
after the completion of employment.

4. Accumulated untaken Holiday leave
The entity shall make a provision for Unpaid Holiday Leave at the reporting date.
Profit Sharing & Bonus plans
The entity shall recognize the expected cost of profit sharing and bonus payments only when;
The entity has a present legal or constructive obligation as a result of a past event &
A reliable estimate can be made

5. Termination benefits;
An Entity shall recognize termination benefits as a liability and as an expense only when the entity is demonstrably committed either;
To terminate the employment of an employee or a group of employees before their normal retirement date; or
To provide termination benefits as a result of an offer made in order to encourage voluntary redundancy.
Demonstrably committed to a termination only when the entity has a detailed formal plan for the termination and is without realistic possibility of withdrawal.
Use “Best Estimate” of the expenditure required to settle the obligation at the reporting Date

6. 2 Types of Pension Scheme
Defined Contribution
Risk of shortfall is with employee
Defined Benefit
Risk of shortfall is with Company
Risk is the possibility of the Pension Fund’s assets being inadequate to pay pensions as they fall due.
Radical difference between two types in relation to Pension Risk for company

7. Pension “Risk”
The Pension assets are” inadequate “to pay members pensions as they fall due. In a Defined Contribution scheme, the company is not obliged to make any further payments. So, the employee has to make up the shortfall. In a Defined Benefit Scheme, the company must make good any shortfall. Hence, the pension risk is with the Company.

8. Defined Contribution
The Company pays an agreed amount per annum into the
Pension fund.
It has no further obligation in relation to the Pension Fund.
This is the company’s only commitment. The company can have
no shortfall or surplus.
The risk of a pension shortfall rests with the employee.

9. Accounting for Defined Contribution Schemes
Profit & Loss
The contributions payable for the period are charged as
an Expense in the P&L
SOFP
Any Unpaid or Prepaid contributions at the end of the
year are shown in the Balance Sheet as an accrual or
prepaid.
This is the only asset/liability that the Company has in
relation to Pension Fund obligations.

10. Disclosure for Defined Contribution
Amount recognized in the Income Statement.
If an entity treats a Defined Benefit multi-employer plan as a Defined Contribution plan , because of insufficient information to treat it as a DBS, it shall disclose this fact & the reason why it is being accounted for as DCS, along with available information regarding the surplus or deficit, and the implications if any for the entity.

11. Defined Benefit Scheme (DBS)
The major difference in a Defined Benefit Scheme is that the company guarantees the amount of the Pension Benefits that its employees receive after they retire. The Risk of a Pension Shortfall rests with the Company

12. Accounting Treatment for Defined Benefit
Recognize in Statement of Financial Position; Pension Obligations less Assets in Company’s Non current Liabilities. Net figure recognized for each separate Pension Fund (Ring fences Pension assets are set off against Liabilities.)

13. Defined Benefit Cost in the Income Statement
“Net” Expense in P&L will be the total of ;
Current Service Cost
Past service Costs.
Net Interest on the Net Defined Benefit Liability

14. Typical DBS Pension Account
Assets
Liabilities
Net
Opening Assets and Liabilities
5,000
(7,500)
(2,500)
Current service Cost
(2,000)
Past Service Cost
(1,100)
Net Interest Cost on Net Liability
350
( 750)
( 400)
Contributions Paid in
3,000
Pensions paid out
(1500)
1,500
Expected Assets & Liabilities
6,850
( 9,850)
(3,000)
Remeasurement Gains & Losses ????
1,150
150
1,300
Closing Assets & Liabilities
8,000
(9,700)
(1,700)

15. Valuation of Pension Liabilities
Liabilities are measured at the Present Value of the
Deferred obligations, using the Projected Unit Credit
Method.
Future Pensions payable to retired members & current
employees are the principle liabilities of a defined Benefit
scheme.
These obligations are estimated by the actuary based
on estimates and assumptions.
Since pensions are payable in the future, the obligations are
discounted at their present values

16. Appropriate Discount Rate for Liabilities.
Defined Benefit Scheme liabilities should be discounted at a rate that reflects the time value of money and the characteristics of the liabilities. Such a rate should be assumed to be the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. A bond rated at the level of AA or Equivalent status.

17. Actuarial Valuations Not required to be carried out annually.
Not required to be carried out by an Independent Valuer.
Use the “Projected unit Method” if it can be done without undue cost and effort. Otherwise, use the “Discontinuance Method”.

18. Valuation of Pension Assets
The Pension plan assets are valued at Fair Value.
Assets include equities, bonds, cash and Properties. The Fair
Value of Equities will be the Market Value of shares quoted on
the Stock Exchange
This does not take a long-term view, but rather a short-term
valuation view which increases the volatility of the Gains or
Losses reported annually.

19. Current Service Cost
Employees earn additional pension entitlements for every year
they work. This increases in the Liabilities of a Pension
scheme.
The ACTUARY will provide this figure for each year
Company Accounts
Dr: Profit & Loss Account 2,000
Cr: Pension Liabilities ,000

20. Past Service Cost
A decision to improve benefits retrospectively will lead to “extra
liabilities” immediately in relation to Past service. This is called
“Past Service Costs”

21. Net Interest on the NET Defined Pension Liability
The Net Interest on the Net Defined Benefit Liability shall be determined by multiplying the net defined benefit liability by the discount rate, both as determined at the start of the period, taking into account any changes in the net defined liability during the period as a result of contribution and benefit payments. Rate on High Quality corporate bonds. (or Government bonds)

22. Re-measurement Gains and Losses
Actuarial Gains and Losses are increases and decreases in the pension plan assets or liabilities that occur either because the actuarial assumptions have changed or because there were differences between the previous assumptions and actual reality (experience adjustments)

23. Calculate Re-measurement Gain or Loss
Take Opening Pension Fund Assets & Liabilities
 Adjust for Operating Costs;
Current Operating Costs
Past Service Cost
Curtailment Costs
Return on Assets
Interest Cost of Pension Fund Obligations

24. Calculate Re-measurement Gain or Loss
Adjust for
Cash-flows to & from Pension scheme
Contributions paid into fund
Benefits paid out (unique as it reduces assets & liabilities)
This gives you the “Expected” Assets &
Liabilities

25. Calculate Re-measurement Gain or Loss
Compare the
Expected Closing Assets & Liabilities &
Actual Closing Pension Assets &Liabilities
Difference is the Re-measurement Gain or Loss

26. Re-measurement Gains & Losses
Re-measurement Gain or Loss shall be recognised in the Other
Comprehensive Income (OCI)

27. Net Pension Fund Liabilities/Assets in the Balance Sheet
Fair Value of Pension Fund Obligations
less
Fair Value of Pension Fund Assets

28. Net Pension Fund Asset in the SOFP
Ceiling on the Net Pension Fund Asset in the
Accounts.
Pension Fund Asset recognized cannot exceed;
Present Value of economic refunds arising from refunds or
pension fund holidays

29. Disclosures for Defined Benefit
General description of the nature of the plan.
Accounting policy for actuarial gains & losses
A narrative explanation if the entity uses the simpler method of valuation of obligations.
Date of most recent actuarial valuation.
A reconciliation of the movement in Pension Obligations.
A reconciliation of the movement in Pension Assets.

30. Disclosures for Defined Benefit
The total cost relating to DBS for the period, separating;
Recognized in P&L as an expense.
Included in the cost of an asset
Details of plan assets and return for the year.
Principal assumptions