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Employee Benefits - Coggle Diagram
Employee Benefits
Defined contribution schemes
Definition
No legal obligation or constructive obligation to make further contributions if the fund does not have sufficient assets.
Entity pays fixed contributions into a pension scheme.
Guaranteed amount: set % of employee's current salary
Accounting treatment
Credit cash paid
Accrual/prepayment arises if cash paid is different to contributions due
Charge pension contribution to SPL (employment expense)
DR SPL, CR Cash & DR/CR Prepayment/accrual
Defined benefit schemes
Definition
Entity guarantees a particular level of pension benefit to its employees upon retirement
Salary at retirement x number of years worked / xx years
Legal or construction obligation to pay out a guaranteed amount of retirement benefit
If the fund does not have sufficient funds then the company has to find additional funds
Accounting treatment
Plan obligation as PV (-)
Plan asset at FV (+)
Unwinding of discount (- & +)
Service cost (-)
Net pension liability / (asset)
Obligation > Assets -> deficit which is a liability in SFP
Obligation < Assets -> surplus which is asset in SFP (refunds or reduced contribution in the future)
Benefits paid (+ & -)
Contributions (+)
At reporting date
Remeasurement & record OCI
Closing balance per actuary
B/F
Asset ceiling
Capped on the asset
Lower of:
Surplus in the defined benefit plan
Asset ceiling
PV of any economic benefits from the plan or reductions in future contributions to the plan
Other employee benefits
Non salary perks & incentives
Long term
Termination benefits in the form of sump sum. Entitlement to such payments is not accrued over time and only becomes available in a short period
Accumulated balances are earned over time & are capable of being carried forward: holiday allowance
Non accumulating benefits should only be recognised when the absence occurs: Sick leave
Benefits in kind: recognise as an expense (same way as benefits payable in cash) monthly childcare costs
Recognition: of termination
Employer is committed to pay(employees informed)
Business plan to recognise restructuring costs
Earlier of:
Short term
Accruals concept
Settled within 12 months
Bonuses
ACTUARY: will be used to give lots of estimate for long term employee benefit