ACCT3321 Lecture Notes - Lecture 5: Defined Contribution Plan, Financial Statement, Profit Sharing
CHAPTER 9
Employee Benefits
Short-term employee benefits
- Employee benefits (other than termination benefits) that are expected to be settled
wholly before twelve months after the end of the annual reporting period in which
the employees render the related service
- Include payment for employment services as well as paid leave entitlements (sick
leave…)
- Non-monetary benefits fringe benefits health insurance, housing and motor
vehicles
-Payroll
oThe subsystem for regular recording and payment of employee benefits
oInvolves:
Recording the amount of wages or salaries for the pay period
Updating personnel records for the appointment of new employees
Updating personnel records for termination of employment contracts
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oemployers are typically required to deduct and withhold income tax from
employees’ wages and salaries employee received a payment that is net of
tax and the employer pays the amount of income tax deducted to the
authorities
oaccounting for the payroll – example 9.1
-Accrual of wages and salaries
oThe end of the payroll often differs from the end of the reporting period…
oExample 9.2
oDR Wages and salaries expense for the cost of employee benefits for the
remaining days
CR Accrued wages and salaries
-Short-term paid absences
oSome entities offer paid leave such as annual leave or short periods of
illness… maternity leave….
oEntitlements that are expected to be settled within 12 months after the end
of the reporting period
oNon-accumulating paid absences leave entitlements that the employee
may not carry forward to a future period
oAccumulating paid absences leave entitlements that the employee may
carry forward to a future period if unused in the current period Paragraph
15 of AASB 119
Vesting the employee is entitled, upon termination of employment,
to cash settle for any unused leave
Non-vesting the employee is not entitled to cash settlement of their
unused leave
oIf the leave is cumulative but non-vesting, it is possible that there will not be
a future settlement the sick leave must still be accrued throughout the
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period of employment, because the employee remains entitled to the leave
while they remain employed, and as such there is no obligation
oExample 9.3 an annual adjustment was made to the provision for annual
leave
oExample 9.4 accounting for accumulating sick leave
-Profit sharing and bonus plans
oBonuses may be determined as a lump-sum amount or market based
measures
oParagraph 19 of AASB 119 entity to recognise profit sharing if:
The entity has a present legal or constructive obligation to make such
payments as a result of past events
A reliable estimate of the obligation can be made
a present obligation exists when, and only when, the entity has no
realistic alternative but to make the payments
oFigure 9.3 – components of remuneration
oMeasured at nominal (undiscounted) amount that the entity expects to pay
Post-employment benefits
- Are benefits, other than termination benefits, that are payable after completion of
employment, typically after the employee retires
- Superannuation plans, employee retirement plans and pension plans
- The employer makes payments (contributions) to a fund in respect of current
employees, which are available for the employee to access at a later date
- The fund, which is a separate entity invests the contributions and provides post-
employment benefits to the employees, who are members of the fund
-Defined contribution plans
oAn entity (employer) pays fixed contributions to a separate entity
(superannuation fund) on behalf of the employee
oNormally based on a percentage of the wages
oThe employer has no legal or constructive obligation to pay further
contributions if the fund does not hold sufficient assets to pay all the
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Document Summary
Employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Include payment for employment services as well as paid leave entitlements (sick leave ) Non-monetary benefits fringe benefits health insurance, housing and motor vehicles. Payroll: the subsystem for regular recording and payment of employee benefits, involves: Recording the amount of wages or salaries for the pay period. Updating personnel records for the appointment of new employees. Updating personnel records for termination of employment contracts. Accrual of wages and salaries: the end of the payroll often differs from the end of the reporting period , example 9. 2, dr wages and salaries expense for the cost of employee benefits for the remaining days. Vesting the employee is entitled, upon termination of employment, to cash settle for any unused leave.
