IAS 19: EMPLOYEE BENEFITS:
IAS 19
− Relationship between ER and EE.
− EE renders services to ER in exchange for payment (all forms of consideration: cash or anything with a
monetary value – e.g. use of a motor vehicle)
o Excluding: receive shares as consideration
− EE has no definition in IAS 19
o Includes partial, casual, full time, etc.
o Excludes agent who works for commission
DEFINITION (Par .08)
− All forms: call phone allowance; pension fund contributions, salaries/wages/bonus
OBJECTIVE (Par .01)
− Recognise an expense: OR can form part of the cost of an asset (capitalised)
− Recognise a liability: current obligation due to past events (fact that the EE rendered a service)
SCOPE (Par .02 - .07)
− Par .05: Types
o S-T benefits: Benefit paid to EE within 12 months after period rendered (year in which the employee
rendered the service)
o L-T benefits: Benefits payable to EE during period after 12 months but before retirement
o Post-employment – after retirement
o Termination benefits: differ from the others as it relates to the termination of Employment and not
services rendered
[1] SHORT TERM BENEFITS:
− Definition (Par .08)
− Includes (Par .09)
− Recognition and measurement (Par .11)
o Only the portion unpaid at year end
Dt Expense (P/L) → use services of the EE (mostly vs capitalised sometimes @ Inv/PPE)
Ct Liability – accrued expense (SFP)
Example:
Monthly salary of R10 000. December is unpaid
Total salary = R10 000 x 12= R120 000
Dt Salary expense (P/L) 120 000
Ct Bank (SFP) 110 000
Ct Accrued expense (SFP) 10 000
Amount paid > discounted amount
Monthly salary of R10 000. December and January is paid.
Annual salary = R10 000 x 12 = R120 000
Dt Salary expense (P/L) 120 000
Ct Bank (SFP) 130 000
Dt Prepaid expense (SFP) 10 000
− SHORT-TERM PAID ABSENCES (.13 - .18)
o Concerns → Leave
o [1] 13(a): Accumulating
▪ Annual leave not used is carried over to next year
o [2] 13(b): Non-accumulating
▪ Annual leave not used falls away at the end of the year
▪ No actual entry – forms part of salary costs
Leave provision (obligation = CT balance in SFP)
1
,Principles
- Only make provision for unused accumulating leave Portion that can be carried over. Cash payment entitlement (no
probability)
- Take into account the probability that the days will be used before they expire (for accumulating non-vesting)
- Make provision at daily tariff that will be applicable when the leave is expected to be taken (this is usually the
following year’s daily tariff, after salary increases)
Steps
A) Calculate the closing balance of the leave provision
- Calculate number of unused days on YE
- Determine how many of the unused days will be used in the future, based on expectations (only for non-vesting)
Vesting (100%)
- Determine the daily tariff that will be applicable when the leave will be taken
CLOSING BALANCE = unused days on YE (for non-vesting: adjusted for number that will be taken, based on
expectations) x daily tariff at which it will be paid
B) Calculate the movement in the leave provision, and account for it in P/L (Movement = Closing balance minus
Opening balance)
E.g. O/B: 100 CT
C/B: 200 CT
Dt Employee benefits (P/L) 100
Ct Leave provisions (SFP) 100
Examples:
1. Accumulating, vesting (e.g. vacation leave) Guaranteed benefit (100%)
Salary per month = R10 000
25 workdays per month.
Get 15 days’ vacation leave per year.
Unused vacation leave can be carried over to the next year and is payable in cash when the employee resigns.
Year 1
Unused: 3 days (only used 12 days leave).
All 3 days will be used in the future: Carry over 3 days to next year [Vesting: 100%]
Daily tariff: 10 000/25 = R400 per day
Closing balance: 3 x 400 = 1 200
Assume that the opening balance = 0
Dt Employee benefit expense (P/L) 120 000
Ct Bank (SFP) 120 000 (10 000 x 12)
3 days leave carried over:
Dt Employee benefit expenses (P/L) 1 200
Ct leave provision (SFP) 1 200
Year 2
Take 3 days leave from previous year.
On assumption no unused days @ end of year 2.
Closing balance = 0
Opening balance = 1 200
Dt Employee benefit expenses (P/L) 120 000 (10 000 x 12)
Ct Bank (SFP) 120 000
Dt Leave provision (SPF) 1200
Ct Employee benefit expense (P/L) 1200
2. Accumulating, non-vesting Consider probability!
2
, A company has 10 employees. Each employee receives R10 000 pm salary in the year ended 31 December 2013, and 15
days’ vacation leave. Unused vacation leave can be carried over, but expires at termination of employment (cannot be
paid out).
On 1 January 2013 the leave provision was R25 000 (in total). On year-end there was 100 unused days (in total). It is
expected that 80% of the unused leave will be taken before termination of employment. Salary increases of 10% has been
announced for the 2014-year. Assume that each month has 25 working days.
ANSWER:
Unused days: 100 days
Carried over: 100 x 80% = 80 days
Daily tariff: = (10 000 x 1.1)/25 = R440
Closing balance of leave provision: 100 days x 80% probability x future daily tariff of (R10 x 1.1) = R35 200
Movement in leave provision: R35 200 (C/B) – R25 000 (O/B) = R10 200
Journal:
Dt Employee benefits (P/L) 10 200
Cr Leave provision (SFP) 10 200
3. Non-Accumulating (e.g. sick leave)
Salary per month = R10 000
Dt EE benefits (P/L) 120 000
Ct Bank (SFP) 120 000
5 days sick leave a year. Unused sick leave cannot be carried over to the next year.
Part of normal payroll → no obligation
Do not provide for unused sick leave. No provision whether leave is taken or not.
− PROFIT SHARING AND BONUS PLANS (.19 - .24)
o Par .19: Recognition
▪ (a) Legal = contract; Constructive = based on past behaviour/practise
▪ (b) Formula in contract or clear evidence from past practise
− Disclosure (Par .25)
o Also note the Companies Act requirement: directors remuneration must be disclosed
3
IAS 19
− Relationship between ER and EE.
− EE renders services to ER in exchange for payment (all forms of consideration: cash or anything with a
monetary value – e.g. use of a motor vehicle)
o Excluding: receive shares as consideration
− EE has no definition in IAS 19
o Includes partial, casual, full time, etc.
o Excludes agent who works for commission
DEFINITION (Par .08)
− All forms: call phone allowance; pension fund contributions, salaries/wages/bonus
OBJECTIVE (Par .01)
− Recognise an expense: OR can form part of the cost of an asset (capitalised)
− Recognise a liability: current obligation due to past events (fact that the EE rendered a service)
SCOPE (Par .02 - .07)
− Par .05: Types
o S-T benefits: Benefit paid to EE within 12 months after period rendered (year in which the employee
rendered the service)
o L-T benefits: Benefits payable to EE during period after 12 months but before retirement
o Post-employment – after retirement
o Termination benefits: differ from the others as it relates to the termination of Employment and not
services rendered
[1] SHORT TERM BENEFITS:
− Definition (Par .08)
− Includes (Par .09)
− Recognition and measurement (Par .11)
o Only the portion unpaid at year end
Dt Expense (P/L) → use services of the EE (mostly vs capitalised sometimes @ Inv/PPE)
Ct Liability – accrued expense (SFP)
Example:
Monthly salary of R10 000. December is unpaid
Total salary = R10 000 x 12= R120 000
Dt Salary expense (P/L) 120 000
Ct Bank (SFP) 110 000
Ct Accrued expense (SFP) 10 000
Amount paid > discounted amount
Monthly salary of R10 000. December and January is paid.
Annual salary = R10 000 x 12 = R120 000
Dt Salary expense (P/L) 120 000
Ct Bank (SFP) 130 000
Dt Prepaid expense (SFP) 10 000
− SHORT-TERM PAID ABSENCES (.13 - .18)
o Concerns → Leave
o [1] 13(a): Accumulating
▪ Annual leave not used is carried over to next year
o [2] 13(b): Non-accumulating
▪ Annual leave not used falls away at the end of the year
▪ No actual entry – forms part of salary costs
Leave provision (obligation = CT balance in SFP)
1
,Principles
- Only make provision for unused accumulating leave Portion that can be carried over. Cash payment entitlement (no
probability)
- Take into account the probability that the days will be used before they expire (for accumulating non-vesting)
- Make provision at daily tariff that will be applicable when the leave is expected to be taken (this is usually the
following year’s daily tariff, after salary increases)
Steps
A) Calculate the closing balance of the leave provision
- Calculate number of unused days on YE
- Determine how many of the unused days will be used in the future, based on expectations (only for non-vesting)
Vesting (100%)
- Determine the daily tariff that will be applicable when the leave will be taken
CLOSING BALANCE = unused days on YE (for non-vesting: adjusted for number that will be taken, based on
expectations) x daily tariff at which it will be paid
B) Calculate the movement in the leave provision, and account for it in P/L (Movement = Closing balance minus
Opening balance)
E.g. O/B: 100 CT
C/B: 200 CT
Dt Employee benefits (P/L) 100
Ct Leave provisions (SFP) 100
Examples:
1. Accumulating, vesting (e.g. vacation leave) Guaranteed benefit (100%)
Salary per month = R10 000
25 workdays per month.
Get 15 days’ vacation leave per year.
Unused vacation leave can be carried over to the next year and is payable in cash when the employee resigns.
Year 1
Unused: 3 days (only used 12 days leave).
All 3 days will be used in the future: Carry over 3 days to next year [Vesting: 100%]
Daily tariff: 10 000/25 = R400 per day
Closing balance: 3 x 400 = 1 200
Assume that the opening balance = 0
Dt Employee benefit expense (P/L) 120 000
Ct Bank (SFP) 120 000 (10 000 x 12)
3 days leave carried over:
Dt Employee benefit expenses (P/L) 1 200
Ct leave provision (SFP) 1 200
Year 2
Take 3 days leave from previous year.
On assumption no unused days @ end of year 2.
Closing balance = 0
Opening balance = 1 200
Dt Employee benefit expenses (P/L) 120 000 (10 000 x 12)
Ct Bank (SFP) 120 000
Dt Leave provision (SPF) 1200
Ct Employee benefit expense (P/L) 1200
2. Accumulating, non-vesting Consider probability!
2
, A company has 10 employees. Each employee receives R10 000 pm salary in the year ended 31 December 2013, and 15
days’ vacation leave. Unused vacation leave can be carried over, but expires at termination of employment (cannot be
paid out).
On 1 January 2013 the leave provision was R25 000 (in total). On year-end there was 100 unused days (in total). It is
expected that 80% of the unused leave will be taken before termination of employment. Salary increases of 10% has been
announced for the 2014-year. Assume that each month has 25 working days.
ANSWER:
Unused days: 100 days
Carried over: 100 x 80% = 80 days
Daily tariff: = (10 000 x 1.1)/25 = R440
Closing balance of leave provision: 100 days x 80% probability x future daily tariff of (R10 x 1.1) = R35 200
Movement in leave provision: R35 200 (C/B) – R25 000 (O/B) = R10 200
Journal:
Dt Employee benefits (P/L) 10 200
Cr Leave provision (SFP) 10 200
3. Non-Accumulating (e.g. sick leave)
Salary per month = R10 000
Dt EE benefits (P/L) 120 000
Ct Bank (SFP) 120 000
5 days sick leave a year. Unused sick leave cannot be carried over to the next year.
Part of normal payroll → no obligation
Do not provide for unused sick leave. No provision whether leave is taken or not.
− PROFIT SHARING AND BONUS PLANS (.19 - .24)
o Par .19: Recognition
▪ (a) Legal = contract; Constructive = based on past behaviour/practise
▪ (b) Formula in contract or clear evidence from past practise
− Disclosure (Par .25)
o Also note the Companies Act requirement: directors remuneration must be disclosed
3
