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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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28.6 Post-employment benefits: defined contribution plans
28.6.1 Extract from FRS102: Section 28.9-28.10 and 29.13-28.13A
28.9 Post-employment benefits include, for example:
(a) retirement benefits, such as pensions; and
(b) other post-employment benefits, such as post-employment life insurance and post-employment medical care.
Arrangements whereby an entity provides post-employment benefits are post-employment benefit plans. An entity shall apply this section to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. In some cases, these arrangements are imposed by law rather than by action of the entity. In some cases, these arrangements arise from actions of the entity even in the absence of a formal, documented plan.
28.10 Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on their principal terms and conditions:
- Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and has no legal or constructive obligation to pay further contributions or to make direct benefit payments to employees if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurer, together with investment returns arising from the contributions.
Recognition and measurement
28.13 An entity shall recognise the contribution payable for a period:
a) As a liability, after deducting any amount already paid. If contribution payments exceed the contribution due for service before the reporting date, an entity shall recognise that excess as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
(b) As an expense, unless another section of this FRS requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment.
28.13A When contributions to a defined contribution plan (or a defined benefit plan which, in accordance with paragraph 28.11, is accounted for as a defined contribution plan) are not expected to be settled wholly within 12 months after the end of the reporting period in which the employees render the related service, the liability shall be measured at the present value of the contributions payable using the methodology for selecting a discount rate specified in paragraph 28.17. The unwinding of the discount shall be recognised as a finance cost in profit or loss in the period in which it arises.
28.6.2 OmniPro comment
28.6.2.1 Post employment benefit defined
Appendix I of FRS 102 defines post-employment benefits plans as ‘formal or informal arrangements under which an entity provides post-employment benefits for one or more employees’. Section 28.9 of FRS 102 provides examples of post employment benefit plans, these include;
- Retirement benefits, such as pensions and
- Other past employment benefits including post employment life insurance and past employment medical expenses.
The rules with regard to post-employment benefits apply whether they involve the establishment of a separate entity to receive and pay benefit or not.
28.6.2.2 Defined contribution scheme – defined
Section 28.10 of FRS 102 defines what a defined contribution plan is and makes it clear that any plan that is not a defined contribution plan is by default a defined benefit plan. For a defined contribution scheme the contributions that are payable are usually based on a percent of the employees’ salary and can be set at a maximum amount depending on the rules of the scheme. The only liability the entity is exposed to is the contributions that it has agreed to pay as per Section 28.10 of FRS 102. The employee takes on the investment risks. If the pension losses money it is not the responsibility of the employer to make up this deficit. Whatever is left in the pension fund at the employee’s retirement date will be what can be used to purchase an annuity etc. Determination as whether a pension scheme is a defined contribution scheme or defined benefit scheme can be determined by reviewing the detailed rules of the scheme. Note employers are not legally required to contribute towards a defined contribution scheme, they are just required to give employees access to a scheme.
28.6.2.3 Measurement
The entity must recognise a liability for the contributions the entity has either legally or constructively agreed to; less any payments made with the cost being expensed in the income statement over the period it is earned unless the pension cost can be capitalised in inventory (if the requirements in Section 13.8 of FRS 102) are met )or property, plant and equipment (if the requirements in Section 17.10 of FRS 102 apply) as stated in Section 28.13 of FRS 102 where the liability is not expected to be paid in full within 12 months of the period end then it must be present valued See 28.10.2. for an example of how this is present valued.
Example 8: Defined contribution scheme
The company has provided employees access to a defined contribution scheme. The Company has agreed that it will contribute an amount up to a maximum of 5% of the employee’s salary. In this case, the employer is only liable for this 5%. If it is not paid within the year it should be accrued. If we assume the amount payable to the defined pension scheme in the year is CU100,000 and CU70,000 was paid up by the year end. The journals required under a defined contribution scheme would be to:
| CU | CU | |
| Dr pension costs in P&L | 100,000 | |
| Cr pension accrual | 30,000 | |
| Cr bank | 70,000 |
Being journal to reflect the cost to the employer for the year.
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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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