IAS 19- Employee Future Benefits and ASPE 3462 Inventory and Biological Assets

1. 1

2. INVENTORY & BIOLOGICAL
ASSETS
EMPLOYEE FUTURE
BENEFITSIAS 19, IFRIC 14, ASPE 3462, IAS 2, IAS 41, ASPE 3031
JITEN PATEL | BYRON NG | SHAHROZ JAFRI | AKASH KAPOOR
2

3. TODAYSAGENDA
PROFESSION
AL
JUDGEMENT/
MANAGEMEN
T ESTIMATES
FUNDAMENTA
L CONCEPT
INVENTORI
ES
BIOLOGICAL ASSETS
POST-EMPLOYMENT
BENEFITS
DISCLOSURES AND IFRIC
14
SHORT TERM,
TERMINATION, OTHER
LONG TERM BENEFITS
3

4. IAS 2 – INVENTORIES
4

5. INVENTORIES – IAS 2
• Are assets that are either:
 Held for sale
 In the process of production for sale
 Materials/supplies to be consumed in
production or rendering services
5

6. MEASUREMENT
• Measured at lower of cost and net
realizable value (NRV)
• Costs include:
 Costs of purchase
 Costs of conversion
 Other costs
6

7. COSTS OF PURCHASE
• Include purchase price, import duties and
other taxes
• Trade discounts, rebates and similar items
are deducted
7

8. COSTS OF CONVERSION
• Includes costs directly related to
production
• Fixed and variable production overheads
required to convert materials into finished
goods
 Fixed is allocated on normal capacity
 Variable is based on actual use
OTHER COSTS
• Incurred to bring inventories to their
present location and condition
8

9. EXCLUDED COSTS
Excluded costs include:
Abnormal amounts of wasted materials
Storage costs
Selling Costs
9

10. COST OF INVENTORIES OF A
SERVICE PROVIDER
• Measured at cost of production
• Includes labour and other costs of direct
personnel
• Sales and general administrative
personnel are expensed in the period
10

11. WOLF CHALLENGE# 1
Dunder Mifflin Inc. (DM) produces inventory, with a
selling price of $500. The materials bought to
produce the inventory cost $300 and $200 was spent
in direct labour for it. Additionally, the depreciation on
the production plant was $150. The inventory
production used 20% of the plant. There is a rebate
of $35. What is the value of the inventory?
11

12. TECHNIQUES FOR MEASUREMENT
OF COST OF INVENTORIES
1. Standard cost method – cost takes into
account normal levels of materials and
supplies, labour, efficiency and capacity
utilization
2. Retail method – Used in the retail
industry for rapidly changing items with
similar margins
 Based on the known relationship between
cost and retail prices of inventory
12

13. COST FORMULAS
• Specific ID is used for items not ordinarily
interchangeable or used for specific
projects
• All other inventories use one of the
following:
 First-in, first-out (FIFO)
 Weighted average
• Must use same formula for items of similar
nature and use
13

14. COST FORMULAS
ILLUSTRATIVE EXAMPLE
DATE DESCRIPTIO
N
UNITS UNIT COST TOTAL COST
March 1 Beginning
inventory
200 $10 $2,000
March 14 Inventory
purchased
300 $12 $3,600
March 17 Inventory
purchased
100 $15 $1,500
Total 600 $7,100
The beginning balance, purchase and sales of
inventory of Dunder Mifflin are shown below.
150 units were sold in March
14

15. COST FORMULAS
ILLUSTRATIVE EXAMPLE
FIFO WEIGHTED AVERAGE
Per unit cost $7,100/600units
=$11.83
COGS = 150*$10 COGS =$11.83*150
=$1,500 =$1,775
Ending Inventory =(50*$10) +
(300*$12) +
(100*$15)
Ending Inventory =$11.83*450
= $5,600 =$5,324
15

16. COST FORMULAS
• Same cost formula must be used for
inventories that are similar
• If the NRV is lower than cost, inventories
will be written down
 Reassessed every subsequent period for
potential reversal
16

17. RECOGNITION AS AN EXPENSE
• The carrying amount of the inventory will
be recognized as an expense in the period
the related revenue is recognized
17

18. DISCLOSURE
• Disclosure of the following:
• Accounting policies used
• Cost formulas
• Carrying amounts
• Inventories recognized as an expense
• Write-downs and reversals
ASPE 3031 vs. IAS
• ASPE requires less detailed disclosures
when compared to IAS 2
18

19. IAS 41 - AGRICULTURE
19

20. AGRICULTURE – IAS 41
• Applied to the following when related to
agricultural activity
• Biological assets (BA)
• Agricultural produce at the point of harvest
• Government grants
20

21. AGRICULTURAL ACTIVITY
• Agricultural activity has three common
features
1. Capability to change
2. Management of change
3. Measurement of change
BIOLOGICAL
ASSET
AGRICULTURAL
PRODUCE
PRODUCTS
RESULTING
Sheep Wool Yarn, carpet
Bushes Leaf Tea
Vines Grapes Wine
21

22. RECOGNITION AND MEASUREMENT
• Three conditions required for recognition:
1. Entity controls the asset from past events
2. Economic benefits to the entity are probable
3. The FV of the asset can be measured reliably
• BAs and agricultural produce are
measured on initial recognition at FV less
costs to sell
• BA can be measured at cost if FV is not available
• Agricultural produce is always measured at FV
22

23. RECOGNITION AND MEASUREMENT
• In certain situations, costs can
approximate FV is little biological
transformation has taken place or is not
material
• BAs in a package
• Gains and losses in P&L
23

24. GOVERNMENT GRANTS
• Unconditional government grant related to
BA
• Recognized in P&L at FV less costs to sell when it is
receivable
• Conditional grants are recognized once all
conditions are met
24

25. DISCLOSURE
General
• Gains/losses
• Description
• Changes in
CA
• Changes in
FV
• Description of
BA
• Why measure
is not reliable
• Useful life and
depreciation
• Gains/losses
• If FV becomes
available
• Nature of
grant
• Unfulfilled
conditions
• Any major
decrease
expected
Government
Grants
When FV not
reliable
25

26. IAS 19- EMPLOYEE
FUTURE BENEFITS
CONCEPTUAL FRAMEWORK
POST-EMPLOYMENT BENEFITS
SHORT AND OTHER LONG TER
& TERMINATION BENEFITS
Defined Benefit
Defined Contribution
DISCLOSURES
26

27. CONCEPTUAL FRAMEWORK
LIABILITY EXPENSE
 Present obligation
 Arising from past events
 Expected future outflow of
economic benefits
 Decrease in economic
benefits or incurrence of
liability
 Allocated to the income
statement systematically
and rationally
EMPLOYEE EMPLOYER
RENDER SERVICES
PROVIDE BENEFITS
MATCHING
PRINCIPLE
27

28. DEFINED BENEFIT V/S DEFINED
CONTRIBUTION
Economic substance of determines its classification as
defined benefit or defined contribution
DEFINED CONTRIBUTION PLAN DEFINED BENEFIT PLAN
Is the entity’s legal or
constructive obligation limited to
the amount that it agrees to
contribute to the fund?
Are the investment and
actuarial risk borne by the
employee?
Is the entity’s obligation to
provide the agreed benefits to
current and former employees?
Are the investment and
actuarial risk borne by the
employer?
28

29. DEFINED CONTRIBUTION PLANS
IFRS (IAS 19) ASPE 3462
An entity’s obligation for each period is determined by amounts to be
contributed based on the plan
No actuarial valuations are necessary to measure the liability or cost
Obligations are measured on an undiscounted basis, except over 12 months
There is no possibility of an actuarial
gain or loss per above treatment
Contributions due for a period after
retirement are discounted, and
actuarial gains/losses may occur
WHY IS IFRS SILENT ON THIS MATTER?
29

30. DEFINED CONTRIBUTION PLANS
IFRS (IAS 19) ASPE 3462
Recognize:
 Liability: for any amounts after
deducting contributions paid.
Excess contributions are recognized
as an asset
(i.e. Prepaid pension expense)
Recognize a cost for a period
comprising:
 Current Service cost
 Past Service cost
 Interest cost
 Reduction in interest income on
unallocated plan surplus
 Amounts are expensed unless
required to be capitalized under
another Standard (i.e. IAS 16 PPE)
Amounts are expensed or capitalized if
required by another Standard
(i.e. ASPE 3061 PPE)
IFRS IS MORE VAGUE IN THIS MATTER
30

31. DEFINED CONTRIBUTION PLANS
ILLUSTRATIVE EXAMPLE
CONTRIBUTION JOURNAL ENTRIES
Contributions not made:
DR. Pension Expense XX
CR. Contributions Payable XX
Over-contributed:
DR. Pension Asset X
DR. Pension Expense XX
CR. Cash XXX
31

32. WOLF CHALLENGE# 2Dunder Mifflin Inc. has a post-employment plan to which it is
required to contribute a fixed amount of 5% of gross salaries to
the fund, regardless of its performance. The monthly salaries
were $75,000 in February 2014. Amounts are paid to the fund
quarterly and the company has a December 31 year-end. Select
the appropriate journal entry for February:
a) DC Plan; Dr. Pension Expense $3,750 Cr. Accrued Pension Liab
$3,750
b) DB Plan; Dr. Pension Expense $3,750 Cr. Accrued Pension Liab
$3,750
c) DC Plan; Dr. Pension Expense $3,750 Cr. Cash $3,750
d) DB Plan; Dr. Pension Expense $3,750 Cr. Cash $3,750
32

33. DEFINED BENEFIT
PLANS
33

34. FUNDING REQUIREMENTS
• DBPs are funded by an entity and sometimes
its employees, into a fund that is legally
separate from the reporting entity.
• The payment of funded benefits depends on
the financial position and investment
performance, and the entity’s ability and
willingness to fund any shortfalls in the fund’s
assets. (IAS 19.56)
THE EXPENSE RECOGNIZED MAY NOT EQUAL
THE PERIOD’S CONTRIBUTION PAID
34

35. ACCOUNTING FOR DBP
1. Determine the deficit or
surplus
2. Determine amounts to
include in profit and loss
3. Determine
remeasurements in Other
Comprehensive Income
4. Determine net defined
benefit liability (asset)
35

36. 1. DETERMINE DEFICIT OR
SURPLUS
• Use the projected unit credit method to
make a reliable estimate of the ultimate cost
to the entity of the benefit that employees
have earned in the current and prior periods
• Discount the benefit to determine the
present value (PV) of the defined benefit
obligation (DBO) and service costs
• Deduct the fair value of plan assets from the
PV of DBO
36

37. PROJECTED UNIT CREDIT
METHOD
• Under this method each period gives rise
to an additional amount of benefit to the
employee.
 Straight line or
 Benefit/years of service approach
Total benefit of $XXX ÷ Number of attribution years of service
37

38. OTHER INPUTS
 Discount rate:
1. Market yields on high quality corporate bonds
2. If unavailable, use yield on government bonds
 Attribution years: Attributed on a straight line basis
from a) date when service leads to benefits to b)
date when service does not lead to material benefits
 Actuarial assumptions:
 Mortality rate
 Employee turnover
 Claim rates
 Financial assumptions
(i.e. discount rates)
38

39. ILLUSTRATIVE EXAMPLE
REFER TO ILLUSTRATIVE EXAMPLE 2 IN HANDOUT
1. Estimate Final Salary: 10,000 x (1.07) 4 = CU 13,108
2. Compute yearly benefit: 13,108 x 1% = CU 131
3. PV of Year 1 obligation: PV of 131 at 10% for 4 years = CU 89 (apply for other
years)
4. Year 2 interest: Opening Balance of 89 x 10% = CU 9 (apply for following years)
Year 1 2 3 4 5
Benefit attributed to:
– Prior years 0 131 262 393 524
– Current year
(1% of final salary) 131 131 131 131 131
– Current and prior years 131 262 393 524 655
Opening obligation – 89 196 324 476
Interest at 10% – 9 20 33 48
Current service cost 89 98 108 119 131
Closing obligation 89 196 324 476 65539

40. WOLF CHALLENGE# 3A lump sum benefit is payable on retirement equal to 2% of the
final salary. The plan pays the benefit only for each year of
service excluding service before the age of 60 until retirement at
age 65. The benefits vest immediately. Charlie joined Dunder
Mifflin when he was 55 years old and his salary at age of 60
today is $100,000, expected to grow at 5% per year for 4 years.
The market yield on junk corporate bonds are 12% and A+
bonds are 10%.
1. What is the attribution period for Charlie (Ages ___ to ___)
2. What is the discount rate?
3. Calculate the current service cost and obligation assuming
the benefits attribute from ages 60 to 65.
40

41. 2. DETERMINE AMOUNTS IN P&L
Current Service costs
±Past Service costs and curtailments
±Gain/loss on settlement
±Net interest on the net defined liability (asset)
= Pension expense reported in Profit & Loss
*Past service cost and gain/loss on settlement recognized at
earlier of:
1) plan amendment and
2) when entity recognizes restructuring costs under IAS 37
41

42. ILLUSTRATIVE EXAMPLE
Continuing illustrative example 2, assume that in Year 4, the entity changed
its pension plan from 1% of final salary to 2%. Assuming no changes to
actuarial assumptions on the final salary of $13,108, compute the past
service cost.
1. Compute revised current service cost: 13,108 x 2% = CU 262 for year 4
and 5
2. Calculate past service costs as difference between amended and original
DBO: 786 (262x3) - 393 (131x3) = 393 for the first 3 years
3. PV past service costs: PV of 393 at 10% for 1 year (Year 4-5)= CU 357
4. PV current service costs: PV of 262 at 10% for 1 year (Year 4-5) = CU
238
5. Expense the current and past service cost: CU 238 AND CU 357
BEFORE AMENDMENT 393 (131x3)
POST AMENDMENT 786 (262x3)
PAST SERVICE COST 393
PV of PAST SERVICE 357 42

43. 3. REMEASUREMENTS IN OCI
• Actuarial gains and losses resulting from changes in
the PV of DBO because of:
1) the differences between previous actuarial
assumptions and what actually occurred (experience
adjustments) or
2) changes in actuarial assumptions
• The difference between actual return on plan assets
and net interest on net defined liability (asset)
• Changes in the asset ceiling (excluding amounts
included in net interest on net defined liability)
Remeasurements in OCI shall not be reclassified into
P&L in a subsequent period. (IAS 19.122)
43

44. 4. DETERMINE NET DEFINED BENEFIT
LIABILITY (ASSET)
Current Service costs
±Past Service costs
±Gain/loss on settlement
±Net interest on the net defined
liability (asset)
±Remeasurements in OCI
= Defined Benefit Obligation
Opening Balance
+Contributions
+ Investment Returns
- Benefits paid
= Fair value of plan
assets
44

45. 4. DETERMINE NET DEFINED BENEFIT
LIABILITY (ASSET)
Defined Benefit Liability
- Fair value of plan assets
= Net Defined Benefit Liability (Asset)
NET DEFINED BENEFIT ASSET IS MEASURED AT LOWER
OF :
1. SURPLUS IN DBP 2. ASSET CEILING
45

46. ILLUSTRATIVE EXAMPLE FOR YEAR
4 Journal Entries Memo Record
Item
Remeasure
ments
(Gain) loss
OCI
Pension
Expense
Cash
Net Defined
Benefit
Liability /
Asset
Defined
Benefit
Obligation
Plan Assets
Opening
Balance - - - 0 324 Cr. 324 Dr.1
Current Service 238 Dr. 238 Cr.
Past Service 357 Dr. 357 Cr.
Net Interest 32 Dr. 32 Cr.
Expected Return 32 Cr. 32 Dr.
Remeasurement
s of return 12 Dr. 12 Cr.3
Contributions 600 Cr. 600 Dr.2
Actuarial
gains/loss ? ?
Expense entry 12 Dr. 595 Dr. 607 Cr.
Contribution
entry 600 Cr. 600 Dr.
Ending Balance 7 Cr. 951 Cr. 944 Cr.
1 Defined benefit plan assumed to be fully funded at opening
2 Contributions is an assumed figure
3 Actual return assumed as 20 and no benefits were paid in yea46

47. WOLF CHALLENGE# 4
In addition to the current service costs of $1,660 from Wolf
Challenge #3, assume that the pension plan was amended
leading to an increased obligation for one of the employees by
$3,600. There was also a revision to the plan as the mortality
rates decreased before plans vested increasing obligation by
$19,400 for other employees.
Please prepare appropriate journal entries:
DR. PENSION EXPENSE
DR. OTHER
COMPREHENSIVE
INCOME
CR. NET DEFINED
BENEFIT LIAB.
CR. NET DEFINED
BENEFIT LIAB
47

48. ASPE 3462- EMPLOYEE
FUTURE BENEFITS
48

49. ASPE 3462
• Formerly ASPE 3461
• Required starting Jan 1, 2014
• Apply retrospectively, in accordance with
ACCOUNTING CHANGES
49

50. CHANGES IN THE STANDARD
• Elimination of deferral and amortization
approach
• Measurement Date
• Use of Valuation Prepared for Accounting
Purposes
• Past Service Costs for DCP
50

51. RECOGNITION
For a defined benefit plan recognize:
a) defined benefit liability(asset) in B/S; and
b) costs of the plan either as an expense or
an amount capitalized as part inventory or
PPE
51

52. WHEN TO RECOGNIZE?
Defined Benefit
Obligation and Cost
for Employee Future
Benefits
Post-Employment Benefits
and Compensated
Absences that do not Vest
or Accumulate
Employees Render
Services in Return
for the Benefits
Event That Obligates the
Entity Occurs
52

53. MEASUREMENT OF DBO
Most recently
completed actuarial
valuation prepared
for funding purposes
but NOT prepared
using a solvency,
wind-up, or similar
valuation basis; or
The measurement policy chosen must be consistent
across all plans
53
Separate actuarial
valuation prepared
for accounting
purposesOR

54. MEASUREMENT – USING
ACCOUNTING VALUATION
1. Projected benefit method prorated on
services, which is the portion of the total
estimated future benefit attributed to each year
of service in the attribution period
• Apply when future salary levels or cost
escalation affect the amount of the employee
future benefits
54

55. MEASUREMENT – USING
ACCOUNTING VALUATION
2. Accumulated benefit method - benefits earned
to date are based on the plan formula, the
employee’s history of pay, and other factors, as
of the date of determination
• Apply when future salary levels and cost
escalation do not affect the amount of the
employee future benefits
55

56. RE-MEASUREMENT OF A DEFINED
BENEFIT OBLIGATION
• The actuarial valuation of DBO every 3 years
• Between valuations, roll-forward technique
used:
a) amount from the last actuarial of the DBO;
b) increase in obligation due to the passage of
time;
c) increase in obligation due to the rendering of
service in the current year; and
d) any benefit payments.
56

57. LIMIT ON THE CARRYING AMOUNT OF A
DEFINED BENEFIT ASSET
• FV of Plan Assets > DBO, plan surplus shall
be recognized as a defined benefit asset on
the B/S only to extent it is expected to be
realized
• Entity determines the expected future benefit
that it expects to realize from the plan surplus
57

58. LIMIT ON THE CARRYING AMOUNT OF A
DEFINED BENEFIT ASSET
+PV expected future annual accruals
- PV required employee contributions and min contributions
the entity is required
± Amount of plan surplus that can be withdrawn
= Expected Future Benefit
58

59. LIMIT ON THE CARRYING AMOUNT OF A
DEFINED BENEFIT ASSET
• The entity shall recognize a valuation allowance
for any excess of the plan surplus over the
expected future benefit.
• A change in the valuation allowance shall be
recognized in income for the period in which the
change occurs.
59

60. ILLUSTRATIVE EXAMPLE 5
• Assume plan surplus for the year is $50,000 and the
expected future benefit is $40,000. What would be the
entry? What if afterwards the expected benefit increases
to $45,000?
JOURNAL ENTRIES
Entry to set up valuation allowance:
DR. Expense $10,000
CR. Valuation Allowance $10,000
Change in valuation allowance:
DR. Valuation Allowance $5,000
CR. Expense $5,000
60

61. DETERMINATION OF THE COST FOR THE
PERIOD
The total cost of a defined benefit plan for a period
comprises:
(a) changes in the DBO other than those resulting from
benefit payments to plan members;
(b) the amount of any plan assets transferred and any
payments made directly by the entity in connection with
a settlement;
(c) the actual return on plan assets;
(d) Any changes in a valuation allowance.
The total cost of a defined benefit plan is reduced by any employee
contributions as it reduces the cost to the company.
61

62. DETERMINATION OF THE COST FOR THE
PERIOD
Actual Return on plan assets based:
+FV of Plan Assets Beginning of Period
- Benefit Payments or Settlements
+ Contributions to the Plan
- FV of Plan Assets Ending of Period
- Costs of Managing Assets Paid by Plan Sponsor
= Actual Return on Plan Assets
62

63. COMPONENTS OF THE COST FOR THE
PERIOD
±Current Service costs
±Finance Cost
±Re-measurements and Other Items
= Pension expense reported in Profit & Loss
63

64. COMPONENTS OF THE COST FOR
THE PERIOD
Re-measurements and other item
± Difference between Actual Return on Plan
Assets and Return calculated
± Actuarial Gains and Losses
± Effect of any valuation allowance
± Past Service Cost
±Gains/Losses arising from Settlements and
Curtailments
= Aggregate of Re-measurements and Other Items
64

65. WOLF CHALLENGE# 5
Dunder Mifflin Inc.’s (DM) accrued DBO at the beginning of 2014 is
$1,450,000, the beginning 2014 FV of plan assets is $1,000,000 (return
on plan assets same as expected for 2014 and no management fees),
and discount rate used in determining the DBO at the start of the period
is 10%. During 2014 DM contributed $225,000 and the plan paid out
$125,000. During 2014, DM faced an actuarial gain of $20,000 due to
changes in estimates and saw current service cost of $75,000. What is
the 2014 cost of the plan under ASPE? (Hint use the components of the
cost for the period)
65

66. MULTI-EMPLOYER VS. MULTIPLE
EMPLOYER
IFRS ASPE
•Multi-employer plans can be either DC
or DB (other than state plans)
•Pools assets contributed by various
entities
•Account for its Proportionate share
•If not sufficient information, apply DC
•Group Administration Plan
aggregation of single employer plans,
but claims segregated, can be DB or DC
•Account for Plan assets on its
proportionate interest in the assets
•Multiemployer plan are DB, two or
more unrelated entities contribute
•Pools assets contributed by various
entities
•Account for its Proportionate share
•If not sufficient information, apply DC
•Multiple-Employer plan, unlike
Multiemployer maintains separate
accounts for each entity and generally
not collectively bargained
•Account for Plan assets on its
proportionate interest in the assets
66

67. DBP DISCLOSURES UNDER IAS 19
Under IAS 19, an entity must disclose information that:
• explains the characteristics of the DB plans and risks
associated with them,
• identifies/explains amounts in its FS arising from its DB
plans, and
• describes how its DB plans may affect the amount,
timing, and uncertainty of the entity’s future cash flows.
*Under ASPE 3462, disclosure is much more
general in nature.
67

68. DBP DISCLOSURES UNDER ASPE
3462
a) General description of each type of plan
b) FV of plan assets at end of period
c) DBO at end of period
d) Plan surplus/deficit at end of period
e) Difference between plan surplus/deficit at end of
period
f) Amount of re-measurements
g) Effective date of most recent actuarial valuation
h) Nature and effect of significant policies changes in
contractual elements of plans during period
i) Whether a funding or accounting valuation was used
j) Any changes between type of valuation used to
measure plan
68

69. BCE EXAMPLE
69

70. SHORT-TERM EMPLOYEE BENEFITS
(IAS 19.9) Employee benefits expected to be settled wholly
before 12 months after the end of the annual reporting
period in which employees rendered service.
Recognition and Measurement
Entity recognizes the undiscounted amount of short-term
benefits expected to be paid:
(a) As a liability after deducting any amount paid.
(b) As an expense, unless another IFRS requires inclusion
of benefits in cost of asset.
70

71. I) SHORT-TERM PAID ABSENCES
Two categories for short-term paid absences:
(a) Accumulating absences, or
(b) Non-accumulating absences
71

72. ACCUMULATING PAID ABSENCES
Paid absences that carry forward and can be used in future
periods, if not used fully in current period. Can be vesting
or non-vesting.
Recognition:
Recognize the expected cost/liability of paid absences
when the employees render service.
Measurement:
Measure the expected cost of accumulating paid absences
as the additional amount the entity expects to pay, based
on unused entitlement that has accumulated at the end of
the period.
72

73. WOLF CHALLENGE #6
Dunder Mifflin’s employees are entitled to 5 working days of
paid sick leave for each year. Unused sick leave may be
carried forward until termination. Note that sick leave days
are taken on a FIFO basis. Given the following information
for Jim Halpert at December 31, 2013, what amount of
short-term paid absences should the entity record at year-
end as an obligation?
Daily
wage
rate in
2013
Accumulated
sick leave days
as at 1/1/2013
Sick leave
days earned
in 2013
Sick leave
days taken
in 2013
Percentage
wage
increase
effective
1/1/2014
$310 2 5 3 2%
73

74. NON-ACCUMULATING PAID
ABSENCES
Paid absences that do not carry forward, but
instead expire at period end if not used in full. Note
that these are non-vesting.
RECOGNITION:
Entity recognizes the cost/liability of paid absences
when absences actually occur.
74

75. II) PROFIT SHARING AND BONUS
PLANS
Recognition:
Entity recognizes the expected cost of profit
sharing and bonus when:
(a) The entity has a present legal or constructive
obligation to make such payments, and
(b) A reliable estimate of the obligation can be
made.
75

76. OTHER LONG-TERM EMPLOYEE
BENEFITS
Employee benefits not expected to be settled wholly within
12 months after the end of the period in which employees
rendered service.
RECOGNITION AND MEASUREMENT
IAS 19 prescribes a modified application of the post-
employment benefit model for other long-term employee
benefits.
ASPE implicitly addresses long term benefits as
compensated absences that best or accumulate. An entity
recognizes a liability as employees render service
(accumulating), or when an absences occur (non-
accumulating).
76

77. TERMINATION BENEFITS (IAS)
(IAS 19.159) Results from either an entity’s decision to
terminate employment or an employee’s decision to accept
an entity’s offer of benefits in exchange for employment
termination.
Recognition:
Recognize liability and expense for termination benefits at
earlier of:
(a) When entity can no longer withdraw the offer of
benefits, and
(b) When entity recognizes costs for restructuring as per
IAS 37 and involves termination benefits.
77

78. TERMINATION BENEFITS (IAS)
Measurement:
• If termination benefits to be settled wholly before
12 months  apply short-term employee
benefits provisions
• If termination benefits to be settled wholly after
12 months  apply other long-term employee
benefits provisions
78

79. TERMINATION BENEFITS (ASPE)
There are 2 types of termination benefits:
(a) Special termination benefits, and
(b) Contractual termination benefits
79

80. I) SPECIAL TERMINATION BENEFITS
Benefits are not contractual and are offered to employees
in exchange for voluntary or involuntary termination of
service.
Recognition:
i) Voluntary: Liability and expense recognized when
employee accepts termination offer and the amount
can be reasonably estimated.
ii) Involuntary: Liability and expense recognized in
period in which several conditions must be met.
80

81. II) CONTRACTUAL TERMINATION
BENEFITS
Benefits that are required to be paid to employees
under existing terms of a benefit plan, payable in
event of involuntary termination if a specified event
occurs.
Recognition:
Liability recognized when it is probable that
employees will be entitled to benefits and the
amount reasonably estimated.
81

82. DISCLOSURE
IAS 19 : Disclosures about short-term employee
benefits, other long-term employee benefits, or
termination benefits not stipulated, but refers to
IAS 24 and IAS 1
ASPE 3462: Entity discloses the nature and effect
of any termination benefits provided in the period
in the FS.
82

83. IFRIC 14
Major Issues:
1) When refunds or reductions in future
contributions should be regarded as available,
2) How a minimum funding requirement affects
the availability of reductions in future
contributions, and
3) When a minimum funding requirement might
give rise to a liability.
83

84. FUNDAMENTAL FRAMEWORK
SHORT TERM
BENEFITS
POST
EMPLOYMENT
BENEFITS
TERMINATION &
OTHER LONG
TERM BENEFITS
Paid within 12
months. Apply to
current employees
Applies to benefits
paid after-
employment ends
Termination
benefits
paid in
exchange to
terminate
employees
(i.e.
Severance)
Other long
term benefits
include
deferred
compensatio
n, jubilee,
and long-term
leave
84

85. DEFINED
CONTRIBUTION
DEFINED
BENEFIT
LIABILITY
recognized for un-
contributed amounts.
EXPENSE
recognized for
amounts due.
CURREN
T
SERVICE
PAST
SERVICE
SETTLE
MENT
GAINS/L
OSSES
ACTUARI
AL
GAINS/L
OSSES
PENSION EXPENSE (PROFIT AND
LOSS)
REMEAS
UREME
NTS IN
OCI
DEFINED BENEFIT OBLIGATION
85

86. DEFINED BENEFIT OBLIGATION
- FAIR VALUE OF PLAN ASSETS
(CONTRIBUTIONS – BENEFITS PAID +
RETURNS)
NET DEFINED BENEFIT LIABILITY (ASSET)
86

87. THANK YOU VIEWERS
87
Q1 Q2 Q3 Q4 Q5 Q6

88. Year 1 2 3 4 5
CU CU CU CU CU
Benefit attributed to:
– prior years - 131 262 786 1,049
– current year (1% of final salary) 131 131 131 262 262
– current and prior years 131 262 393 1,049 1,311
Opening obligation - 89 196 324 952
Interest at 10% - 9 20 32 95
Current service cost 89 98 108 238 262
Past Service cost 357
Closing obligation 89 196 324 952 1,310
APPENDIX: PAST SERVICE
COSTS
88