The relevant Accounting Standards relating to Employee Benefits are the following:-
a. INDAS 19
b. IAS 19
c. AS 15
There is no major difference between INDAS 19 and IAS 19.Therefore, the following descriptions relate to both INDAS 19 and IAS 19.
Statements of Profit and loss and other Comprehensive income, Statement of changes in Equity and Statement of Financial position are the new names of Financial Statements as per IND AS and IAS.
1. Objective.
Accounting and disclosure of employee benefits.
2. Scope
This Standard Shall be used for Accounting and disclosure of all employee benefits.
Exceptions (Not Applicable)
a. Share Based Payment (IND AS 102)
b. Reporting by Retirement Benefit Plans.
3. Employee Benefits
It means all forms of consideration given by an entity in exchange for service rendered by employees.
It may be
I. Short-Term Employee Benefits.
II. Other Long-Term Employee Benefits.
III. Post-Employment Benefits.
IV. Termination Benefits.
4. Short-Term Employee Benefits.
It includes
i. wages
ii. salaries
iii. Social Security Contributions
iv. Short –Term Paid Absences (If Absences are expected to occur within 12 months after the end of the period).
It may be Accumulating or Non-Accumulating
Accumulating. (Both vested and Non-vested)—Recognize expense when employee renders service
Under Vested, Employees are entitled to cash payment on leaving the entity.
Under Non-Vested, Employees are not entitled to cash payment on leaving the entity.
Non-Accumulating —Recognize expense when leave occurs
v. Profit sharing and Bonus payable within 12 months after the end of the period———–Recognize the expected cost (If any legal or constructive obligation for payment).
vi. All other short term Employee benefits— Recognize the undiscounted amount as expense /liability.
5. Other Long-Term Employee benefits.
Ex—Long term disability benefits
Which do not fall due wholly within 12 months after the end of period
Accounting as same as Post Employment defined Benefit plans except that all past service is recognized immediately
6. Post- Employment Benefits.
It may be
i. Retirement benefits
ii. Post -Employment Life insurance
iii. Post -Employment Medical care.
When the entity arranges Post –Employment benefit plans for Post- Employment Benefits, it may be in the form of
a. Defined Contribution Plan.
b. Defined Benefit Plan.
Accounting With respect to Defined Contribution Plan is as follows—
i. Entity pays fixed contribution into a separate fund.
ii. No additional obligation to pay
iii. Recognize the contribution as an expense
iv. The plans may be
a. Multi –employer plans
b. State plans
c. Insured Benefits
Accounting With respect to Defined Benefit Plan is as folows
Accounting is Complex
Here the benefit is defined in advance e.g.“employee will get a pension to the tune of 50% of the last salary”
Contributions are paid into the plan & investments are made
Enough investment returns are expected to be earned to pay the benefits
If assets are insufficient, the employer has to make additional contributions to make up the shortfall
If asset value is greater, the employer may be allowed to take a ‘contribution holiday’ for a while
7. DBP – recognition & measurement
Statement of Profit and loss
a. Current Service Cost (it is the increase in the present value of the defined benefit obligation resulting from employee service in the current period)
b. Interest Cost
c. Past Service Cost-it is the change in the defined benefit liability resulting from the amendment.
d. Expected return on plan asset.
Expected rate of return calculated as follows
Interest and dividend income after tax payable by the fund
Add-Realized and unrealized gains on plan assets
Less-Administration Costs
OTHER COMPREHENSIVE INCOME
a. Actuarial gains and losses
It may be calculated as follows—
Expected return on plan Assets-Actual return on plan Assets.
Actual Return on Plan Assets
Fair market value of Assets (end of year)
Less-Fair market value of Assets (Beginning of year)
Add-(Employer Contributions Less-Benefits paid).
STATEMENT OF FINANCIAL POSITION
Amount recognized as defined benefit liability
It may be calculated as follows–
a. Present value of the defined benefit obligation
Opening balance (Cr.)
+ Current service cost
+ Past service cost
+ Interest cost (@ discount rate)
– Benefits paid
+
Actuarial gain or loss.
Minus the fair value of the balance sheet date of plan assets.
Fair value of plan assets at end of the period may be calculated as follows—
Fair value (Beginning)
+ Expected return
+ Contributions
– Benefits paid
+
Actuarial gain or loss.
7. Termination benefits are provided either on
i. Compulsory Termination
ii. Voluntary termination
Accounting-
Entity shall recognize a Liability and expense for termination benefits at the earlier of the following dates-
i. When the entity can no longer withdraw the offer of those benefits
ii. When the entity recognizes cost of restructuring that is within the scope of INDAS 37 and involve the payment of termination benefits
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