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LECTURE WEEK TWELVE

LECTURE WEEK TWELVE. EMPLOYEE BENEFIT AND RETIREMENT BENEFIT. Employee Benefits. FRS 119 (2004) Definition “ Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees ”. Categories of Employee benefits:. short-term employee benefits

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LECTURE WEEK TWELVE

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  1. LECTURE WEEK TWELVE EMPLOYEE BENEFIT AND RETIREMENT BENEFIT

  2. Employee Benefits • FRS 119(2004) • Definition “Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees”

  3. Categories of Employee benefits: • short-term employee benefits • Monetary (wages, salaries and social security contributions, paid annual leave and paid sick leave, profit sharing and bonuses ) • Non-monetary (such as medical care, housing, cars and free or subsidised goods or services) for current employees • post-employment benefits • pensions, other retirement benefits, post-employment life insurance and post-employment medical care • other long-term employee benefits • including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits. • termination benefits.

  4. The employee benefits to which this Standard applies include those provided: • under formal plans or formal agreements: between an entity and individual employees, groups of employees or their representatives • under legislative requirements: entities are required to contribute to national, state, industry or other multi-employer plans • Under informal practices: the entity has no realistic alternative but to pay employee benefits.

  5. Short Term EB: • Payable within twelve month of the end of the period • Eg:For a services rendered by employee they are entitled to received 30 days each of annual vacation leave. If the employee only take 20 days leave and carried forward 10 days. Assume the employees get RM50 wages per day. Dr Staff Cost 500 Cr Provision for employee paid leave 500

  6. Post – Employment Benefits: • Benefit paid to ex- employee • Benefits includes: • Retirement benefit • Pension • Post – employment medical benefit • Two forms of paying PEB: • Defined contribution plan • Defined benefit plan

  7. Defined Contribution Plan: • Called post-employment benefit plans. • Employers pays fixed contributions into a fund • The employers legal or constructive obligation is limited to the amount that the employer has agreed to contribute to the fund. • The employee will receive the contribution and the return on the contributions. • Eg. EPF (Dr Staff cost Cr Cash)

  8. Define benefit plan: • The employee are guaranteed a specific amount of benefit • Lump sum payment such as gratuity or periodic payments such as pension • The obligation to provide agreed benefits, actuarial risk (benefits cost more than expected) and investment risk are all borne by the entity

  9. ……….cont • The amount of contribution of the fund rely upon the estimate made by the actuary • The obligation measured are discounted as the settlement is much later date • Plans: • Funded: entity contributes a specific amount to the funds and from the funds benefits then paid to the employee

  10. Accounting for defined benefits plan: • Step 1: • Using actuarial techniques make a reliable estimate of the amount of benefit that employees have earned in return for their service in the current and prior periods. • The actuarial assumptions include: • demographic variables (such as employee turnover and mortality) • financial variables (such as future increases in salaries and medical costs) that will influence the cost of the benefit

  11. ……………….cont • Step 2: • discounting that benefit using the Projected Unit Credit Method in order to determine the present value of the defined benefit obligation and the current service cost • Step 3: • determining the fair value of any plan assets • Step 4: • determining the total amount of actuarial gains and losses

  12. ……………..cont • Step 5: • determining the resulting past service cost when the plan has been introduced or changed • Step 6: • determining the resulting gain or loss when the plan has been curtailed or settled

  13. Other long term employee benefits • This method differs from the accounting required for post-employment benefits as follows: • actuarial gains and losses are recognised immediately • all past service cost is recognised immediately.

  14. Termination Benefits: • It gives rise to an obligation is the termination rather than employee service. • Recognition: as a liability and an expense when, and only when, the entity is demonstrably committed to either: • terminate the employment of an employee before the normal retirement date • provide termination benefits to encourage voluntary leave.

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