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Contents
28.1.1 Extract from FRS102: Section 28.1.
28.2 General recognition principle for all employee benefits.
28.2.1 Extract from FRS102: Section 28.3-28.5.
28.3 Short-term employee benefits.
28.3.1.2 Example of Short term benefits.
28.4 Recognition and measurement: Short-term compensated absences.
28.4.1 Extract from FRS102: Section 28.6-28.7.
28.4.2.1 Accumulated compensation.
28.4.2.2 Holiday pay accrual examples.
28.4.3 No-accumulated compensation.
28.5 Recognition: Profit-sharing and bonus plans.
28.5.1 Extract from FRS102: Section 28.8.
28.6 Post-employment benefits: defined contribution plans.
28.6.1 Extract from FRS102: Section 28.9-28.10 and 29.13-28.13A.
28.6.2.1 Post employment benefit defined.
28.6.2.2 Defined contribution scheme – defined.
28.7 Multi-employer plans and state plans.
28.7.1 Extract from FRS102: Section 28.11-28.12.
28.7.2.1 Multi-Employer plans – defined.
28.7.2.3.1 Entity’s portion of the pension assets/liabilities can subsequently be determined.
28.8 Post-employment benefits: Defined benefit plans – recognition.
28.8.1 Extract from FRS102: Section 28.10(b) and Section 28.14.
28.8.2.1 Defined benefit scheme.
28.8.2.2 Method for calculating the defined benefit plan asset and liabilities.
28.8.2.2.1 Sample journal entries for a defined benefit plan.
28.9 Measurement of the net defined benefit liability.
28.9.1 Extract from FRS102: Section 28.15, 28.15A and 28.22.
28.9.2.1.1 Defined benefit asset net deemed to be recoverable.
28.9.2.3 Determining the figure to use from the actuarial report and the related accounting.
28.10 Inclusion of both vested and unvested benefits.
28.10.1 Extract from FRS102: Section 28.16.
28.11.1 Extract from FRS102: Section 28.17.
28.12 Actuarial valuation method.
28.12.1 Extract from FRS102: Section 28.18-28.20.
28.12.2.1 The valuation method and who can perform valuation.
28.12.2.2 Illustration of projected unit credit method.
28.13 Plan introductions, changes, curtailments and settlements.
28.13.1 Extract from FRS102: Section 28.21-28.21A.
28.13.2.1 Definition of a settlement and the accounting treatment.
28.13.2.2 Definition of a curtailment and accounting treatment.
28.14 Cost of a defined benefit plan.
28.14.1 Extract from FRS102: Section 28.23.
28.14.2.1 What costs get recognised in in the profit and loss account.
28.14.2.2 What costs get recognised in other in other comprehensive income.
28.14.3 Employer contributions.
28.15 Net interest cost –defined benefit plan.
28.15.1 Extract from FRS102: Section 28.24-28.24B.
28.16 Remeasurement of the net defined benefit liability.
28.16.1 Extract from FRS102: Section 28.25-28.27.
28.17.1 Extract from FRS102: Section 28.28.
28.18 Other long-term employee benefits.
28.18.1 Extract from FRS102: Section 28.29-28.30.
28.18.2.1 Example of other long term employee benefits.
28.18.2.2 Accounting requirements.
28.19.1 Extract from FRS102: Section 28.31-28.37.
27.19.2.1 Termination benefit defined.
28.19.2.2 Terminating payment included in contract.
28.20 Group defined benefit plans.
28.20.1 Extract from FRS102: Section 28.38.
28.21 Deferred tax and pension schemes.
28.21.1 Deferred tax on the defined benefit pension scheme liability/asset
28.21.2 Deferred tax on the defined contribution pension scheme.
28.22.1 Disclosures about short-term employee benefits.
28.22.1.1 Extract from FRS102: Section 28.39.
28.22.2 Disclosures – defined contribution plans.
28.22.2.1 Extract from FRS102: Section 28.40-28.40A.
28.22.2.2.1.1 Accounting policies.
28.22.2.2.1.1.1 Employee benefits.
28.22.2.2.1.2 Notes to the financial statements.
28.22.3 Disclosures – defined benefit plans.
28.22.3.1 Extract from FRS102: Section 28.41-28.41A.
28.22.3.2.1 Accounting policies.
28.22.3.2.2 Notes to the financial statements.
28.22.3.2.3 Extract from other comprehensive income showing actual gain/loss.
28.22.4 Disclosures about other long-term benefits.
28.22.4.1 Extract from FRS102: Section 28.42-28.44.
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28.19 Termination benefits
28.19.1 Extract from FRS102: Section 28.31-28.37
28.31 An entity may be committed, by legislation, by contractual or other agreements with employees or their representatives or by a constructive obligation based on business practice, custom or a desire to act equitably, to make payments (or provide other benefits) to employees when it terminates their employment. Such payments are termination benefits.
Recognition
28.32 Because termination benefits do not provide an entity with future economic benefits, an entity shall recognise them as an expense in profit or loss immediately.
28.33 When an entity recognises termination benefits, the entity may also have to account for a curtailment of retirement benefits or other employee benefits.
28.34 An entity shall recognise termination benefits as a liability and an expense only when the entity is demonstrably committed either:
(a) to terminate the employment of an employee or group of employees before the normal retirement date; or
(b) to provide termination benefits as a result of an offer made in order to encourage voluntary redundancy.
28.35 An entity is demonstrably committed to a termination only when the entity has a detailed formal plan for the termination13 and is without realistic possibility of withdrawal from the plan
Measurement
28.36 An entity shall measure termination benefits at the best estimate of the expenditure that would be required to settle the obligation at the reporting date. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits shall be based on the number of employees expected to accept the offer.
28.37 When termination benefits are due more than 12 months after the end of the reporting period, they shall be measured at their discounted present value using the methodology for selecting a discount rate specified in paragraph 28.17.
28.19.2 OmniPro comment
27.19.2.1 Termination benefit defined
Appendix I of FRS 102 defines termination benefits as ‘employee benefits provided in exchange for the termination of an employee’s employment as a result of either:
(a) an entity’s decision to terminate an employee’s employment before the normal retirement date; or
(b) an employee’s decision to accept voluntary redundancy in exchange for those benefits’.
A termination benefit once it meets the conditions should be recognised and any further changes to it must be recognised in the profit and loss immediately as per Section 28.32 of FRS 102. Where it is payable in greater than one year it should be discounted using the discount rate similar to that required when valuing a defined benefit/pension liability as detailed above i.e. a discount rate being the return on an AA grade corporate bond of similar length. (Section 28.37 of FRS 102 refer)
The conditions in which a provision should be included at the end of the reporting period mirror the requirements of Section 21 – Provisions which details when a provision can be made. In essence a formal communication would have to be made to staff before year end and there must be a formal plan in place and the entity cannot realistically withdraw the cost should be able to be reliably measured as stated in Section 28.35 of FRS 102.
Example 19: Termination benefits – Forced and voluntary redundancy
Company A has announced a plan to make 20 employees redundant. A formal plan is in place. The company has offered CU1,000 ex-gratia payment to each staff member that comes forward and accepts voluntary redundancy. If 20 employees do not come forward, the entity made it clear in its communication that forced redundancies will occur. If forced redundancies are given a CU500 ex-gratia payment is offered.
The entity assumes based on past experience that 10 employees will take voluntary redundancy and the other 10 may be forced. On this basis a provision for CU15,000 ((10*CU1,000)+(10*CU500)) should be made at year end assuming it is payable within 12 months. Section 28.36 of FRS102 makes it clear where there are voluntary redundancies, then the provision should be based on the number of employee’s expected to accept the offer
28.19.2.2 Terminating payment included in contract.
Termination payments which are legally required to be paid and known at the outset should not be accounted for in accordance with the above instead these should be accounted for as other long term benefits and accrued over the employees life.
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Examples
Example 1: Holiday pay accrual – carry forward of holiday leave including payment on leaving.
Example 2: Holiday pay accrual.
Example 3: Holiday pay accrual – no cash payment for untaken holidays on leaving.
Example 4: Holiday year differs to accounting year.
Example 5: Holiday year differs to accounting year.
Example 8: Defined contribution scheme.
Example 9: Defined benefit plan.
Example 10: Calculating the net defined benefit asset/liability.
Example 11: Calculating the net defined benefit asset/liability.
Example 12: Non-vesting conditions.
Example 13: Projected unit credit method.
Example 18: Other long term employee benefits.
Example 19: Termination benefits – Forced and voluntary redundancy.
Example 20: Recognising deferred tax.
Example 22: Extract from notes to the financial statements.
Example 23: Extract from the accounting policy notes and notes to the financial statements.
Example 24: Extract from the notes to the financial statements.
Example 26: Extract from notes to the financial statements.
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