ACCA SBR ^UK Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Pensions Introduction - Notes ^{1 / 6}

Companies give their employees benefits - the most obvious being wages but there are, of course, other things they may offer such as pensions.

IAS 19 says that the benefit should be shown when earned rather than when paid.

Employee benefits include paid holiday, sick leave and free or subsidised goods given to employees.

Short-term Employee Benefits

As we mentioned above, any benefits payable within a year after the work is done, (such as wages, paid vacation and sick leave, bonuses etc.) should be recognised when the work is done  not when paid for.

Profit-sharing and Bonus Payments

Recognise when there is an obligation to make such payments and a reliable estimate of the expected cost can be made.

Illustration

Grazydays PLC give their employees 6 weeks of paid holiday each year, and because they’re groovy employers, any holiday not taken can be carried forward to the next year.

• Accounting Treatment 
  Any untaken holiday entitlement should be recognised as a liability in the current year even though it wouldn’t be taken until the next year.

Types of Post-employment Benefit Plans

There are two types:

1. Defined Contribution plan

   In this one the company just promises to pay fixed contributions into a pension fund for the employee and has no further obligations.

   The contribution payable is recognised in the income statement for that period.

   If contributions are not payable until after a year they must be discounted.

2. Defined Benefit plan

   This is a post-employment benefit that gives the company an obligation to pay a defined pension to its employees who have left.

The SFP Figure

The present value of the obligation less FV of assets (in the pension fund).