EMPLOYEE BENEFITS Contribution may be a fixed amount, a % of ER’s

income, a % of EE’s earnings or combination of

-all forms of consideration given by an entity in
these factors.
exchange for services rendered by employees or
Trustee determines his retirement benefit.
for the termination of employment.
-EE’s retirement benefit is dependent upon the
trustee’s management of the plan.
A. Postemployment benefits
-If the plan provides exceptional investment
-employee benefits other than termination
performance, EE will share in the gain in the
benefits and short-term employee benefits ,
form of larger benefit.
which are payable AFTER completion of
If the plan does poorly, EE will share in the loss
employment.
by receiving smaller benefit
- includes:
-EE bears the investment risk
a) Retirement benefits, (pension and lump sum
-Once DCP is paid, ER has no more obligation
payment on retirement)
under the plan.
b) Postemployment life insurance
-SSS
c) Postemployment medical care
ACCOUNTING for CONTRIBUTION PLAN
- classified as either defined contribution plans
-is straightforward because the
or defined benefit plans
obligation of the entity is determined by
- such may be contributory or noncontributory,
the amount contributed for each
Funded or unfunded
period.
Contributory plan- EE and ER both contribute to
-There are no actuarial assumptions to measure
the retirement plan but not necessarily equal
the contribution and there is no possibility of
amounts. Both share in the retirement benefit
any actuarial gain or loss.
cost
-Obligations are measured on an undiscounted
Noncontributory plan- ER only makes
basis, except when they are not expected to be
contributions to the retirement benefit plan.
settled wholly within 12 mos. After the end of
Funded plan- entity sets aside funds for future
the period.
retirement benefits by making payments to a
ACCOUNTING PROCEDURES
funding agency such as trustee, bank or
a) Contribution- as expense in the period
insurance company. Funding agency is
it is payable
responsible for accumulation of funds and for
b) Any unpaid contribution at the end of
making payments to retired EE when benefits
the period shall be recognized as
become due.
accrued expense
Unfunded plan- entity retains the obligation for
c) Any excess contribution- as prepaid
the payment of retirement benefits without
expense but only to the extent that the
establishment of a separate fund.
prepayment will lead to a reduction in
future payments or a cash refund.
DEFINED CONTRIBUTION PLAN
DISCLOSURES
-under which an entity pays fixed contributions
a) The amount recognized as expense for
into a separate entity known as fund.
the DCP
-entity makes a specific or definite amount of
b) The contribution to DCP for key
contribution to a separate fund without
Management as required by PAS 24 on
specifying the retirement benefit to be received
related party disclosures
by the employee.
-Contribution is definite, benefit is indefinite.
DEFINED BENEFIT PLAN employee benefit obligation, rather than an
- An entity’s obligation is to provide the investment to meet the obligation.
agreed benefits to employee. Consequently, the entity no longer has an asset
- EE is guaranteed specific of definite or liability. Such insurance payments shall be
amount of benefit which is usually treated as contribution to a defined
related to his salary and years of contribution plan.
service. ACCOUNTING FOR DEFINED CONTRIBUTION
- Benefit is definite, but contributions id PLAN
indefinite. -straightforward because the obligation of the
- Entity assumes the investment risk entity is determined by the amount contributed
- If the plan is exceptionally good, entity for each period.
may take contribution holiday, meaning -No actuarial assumptions to measure the
stop paying the contribution for a while contribution and NO possibility of any actuarial
If plan is poor, Entity must make gain or loss.
additional contributions for any -Obligations are measured on an undiscounted
expected shortfall in order to satisfy the basis, except when they are not expected to be
promised future benefits settled wholly within 12mos. After the end of
- R.A 7641 the period.
Multiemployer plan ACCOUNTING PROCEDURES
- DCP or DBP that pools the assets a) Contribution> expense in the period it is
contributed by various entities that are payable
not under common control and uses b) Any unpaid contribution at the end of
those assets to provide benefits to EE of the period> accrued expense
more than one entity c) Any excess contribution > prepaid
Insured benefits expense only to the extent that
-DCP- an entity may pay insurance premium to prepayment will lead to a reduction in
fund a postemployment benefit plan future payments or cash refund.
DBP- the entity has a legal or constructive DISCLOSURES- DCP
obligation: a) Amount recognized as expense for the
a) To pay the employee benefits directly DCP
when they fall due b) Contribution to DCP for key
b) To pay further amounts if the insurer management personnel required by
does not pay all future employee PAS24 on related party disclosures.
benefits relating to employee service in
the current and future periods. ACCOUNTING FOR DEFINED BENEFIT PLAN
When an insurance policy is in the name of a -complex due to actuarial assumptions which
specified plan participant or a group of requires to measure the obligation and the
participants and the entity does not have legal expense and there is a possibility of actuarial
or constructive obligation to cover any loss on gains and losses.
the policy, the entity has no obligation to pay -measured on discounted basis
benefits and the insurer has sole responsibility -may be unfunded, fully or partly, by the
for paying benefits. contributions of the entity
Payment of fixed premium under the insurance -expense recognized is not necessarily the
contract is in substance the settlement of the amount of the contribution for the period.
 COMPONENTS OF DEFINED BENEFIT PBO
COST DATE C.service cost Int.Expense PV
1) Service Cost which comprises
a) Current service cost Current service cost
- The increase in the PV of DBO resulting
b) Past service cost
from employee services in the current
c) Any gain or loss on settlement
period
2) Net interest: - The cost is the cost to an entity under a
a) Interest expense on defined defined benefit plan for service
benefit obligation- included in rendered by employees in the current
the computation of DBO at year year
end in the memo of trustee - Increases expense and DBO
b) Interest income on plan assets- Past service cost
included in the computation of - Change in the PV of DBO for employee
the FVPA at year end in the service in prior periods resulting from a
memo record of the trustee plan amendment or curtailment.
- RECOGNITION:
c) Interest expense on effect of
- An expense, wheteher vested or
asset ceiling
unvested, at the earlier of the ff. dates:
Note: Service cost and Interest cost> P/L as
a) When plan amendment and
component of Employee benefit expense
curtailment occurs
3) Remeasurements: b) When the entity recognizes related
a) Remeasurement of plan assets restructuring costs or termination
b) Remeasurement of projected benefits
benefit obligation
c) Remeasurement of the effect of Net interest (on defined benefit liability or
asset ceiling asset)
Note: ALL of Remeasurements> OCI , not - The change in the DBO, plan assets and
recycled or reclassified subsequently to P/L, effect of asset ceiling as a result of
may be transferred within equity or reclassified passage of time
to retained earnings. - A) Interest expense on Defined benefit
liability= DBO Beg. X Discount rate
Actuarial Valuation Method B) Interest income= FVPA Beg. X
Projected unit credit method AKA accrued discount rate
benefit method- shall be used in determining c) Interest expense on effect of asset
the PV of the DBO and the related current ceiling= effect of asset ceiling Beg. X
service cost and where applicable, past service discount rate
cost. - the difference between the interest expense on
-such sees each period of service as giving rise DBO, on effect of asset ceiling and interest
to an addt’l unit of benefit entitlement and income on PA.
measures each separately to build up the final Note: Expected return on plan assets is
obligation IGNORED completely.
(a) (b) (a X b) PLAN ASSETS
Year Benefit PV factor PV
-assets held by long-term benefit fund and  COMPUTATION OF FVPA
qualifying insurance policies of which conditions FVPA- beg. Xx
are: Contribution to fund xx
a) Assets are held by an entity, the fund itself, Interest income xx
that is legally separate from the reporting entity Remeasurement G/L on PA xx/(xx)
b) Assets are available to pay ONLY employee Less: Benefits paid (xx)
benefits FVPA –Ending xx
c) Assets are not available to the reporting
entity’s own creditors even in bankruptcy PROJECTED BENEFIT OBLIGATION
d) Assets cannot be returned to reporting entity -actuarial PV of all benefits attributed by the
unless if the remaining assets of the fund are pension benefit formula to EE service rendered
enough to meet all EE benefit obligations or before a specified date based on future
assets are returned to the reporting entity to compensation level or future salary increases.
reimburse for EE benefits already paid - the defined benefit obligation contemplated
under PAS 19.
RETURN ON PLAN ASSETS -if based on current salary level, it is
a) Interest, dividend and other income accumulated benefit obligation
derived from the plan assets
b) Realized and unrealized gains/losses on *Definition of terms
the assets Plan amendment- includes introduction of DBP
-below are deducted in computing Return on PA or changes to an existing DBP
a) Any costs of managing PA or cost of Plan curtailment- significant reduction by the
managing investments entity in the no. of employees covered by the
b) Any tax payable by the plan itself or any tax DBP. Thus may arise from: closing of plant,
on investment income discontinuance of an operation and termination
or suspension of a plan
REMEASUREMENT OF PLAN ASSETS Experience adjustments- results from the
-accounted for as component of OCI differences between the previous actuarial
- Actual return on PA minus the interest income assumptions and what has actually occurred,
on the FV of PA Beg. = remeasurement arise because actual events inevitably differ
Actual return on PA> Interest income on FVPA= from actuarial assumptions.
remeasurement gain
Actual return on PA< Interest income on FVPA=
remeasurement loss ACTUARIAL GAINS AND LOSSES
- The changes in the PV of projected
COMPONENTS OF FVPA benefit obligation resulting from
a) Contribution to the fund experience adjustments and the effects
b) Interest Income on plan assets of changes in actuarial assumptions
c) Remeasurement gain or loss on PA Actuarial assumptions
-entity’s best estimate of the variables that
d) Benefits paid upon retirement
determines the ultimate cost of providing
e) Settlement price of plan settlement
postemployment benefits
before retirement -unbiased if they are neither imprudent nor
excessively conservative
 - mutually compatible if they reflect the a) FVPA- source of fund set aside in meeting
economic relationships between factors future benefit payments
such as inflation rates of salary increase, b) PBO- PV of expected future payments
RPA and discount rate. required to settle the obligation arising from the
-demographic assumptions and financial employee service in the current and prior
assumptions periods.
-discount rate – market yield at the end of 
reporting period on high quality bonds, if DR balance- FVPA
there is no such, then gov’t bonds. CR balance- PBO
PBO is measured on the reflection of
estimated future salary increases FVPA> PBO= plan overfunded, prepaid benefit
cost ( noncurrent asset)
CAUSES OF ACTUARIAL FVPA< PBO= plan underfunded, accrued benefit
-a) Unexpected high or low rate of EE cost ( noncurrent liability)
turnover, early retirement or mortality and
increase in salary
b) Change in assumptions concerning Prepaid/ Accrued benefit cost is balancing figure
benefit payment options
c) Change in discount rate COMPUTATIONS
- Actuarial gains or losses DO NOT include in
the PV of PBO arising from intro, FVPA xx
amendment, curtailment or settlement of PBO xx
the benefit plan->>>such changes results in Prepaid/Accrued Benefit cost xx
past service cost or gain or loss on plan
settlement. Current service cost xx
Any gain/ loss on settlement (xx)/xx
REMEASUREMENT OF PBO Past service cost xx
Actual benefit obligation > estimated Interest expense PBO xx
amount = actuarial loss Interest expense asset ceiling xx
Pbo has increased Interest income FVPA (xx)
Actual benefit obligation < estimated Employee Benefit expense xx
amount = actuarial gain
Pbo has decreased Actual return on plan assets xx
Interest income FVPA (xx)
DEFINED BENEFIT PLAN Remeasurement gain/loss on PA xx(xx)
*Actuarial loss due to PBO INC. (xx)xx
Basic Accounting Procedure Net remeasurement loss/gain (xx)xx
Benefit plan- viewed as subentity separate and
distinct from the primary entity, aka ER entity Employee Benefit expense xx
Subentity- maintains info that DOES NOT Net remeasurement loss/gain xx(xx)
appear in the FS of primary entity and is kept by TOTAL DEFINED BENEFIT COST xx
means of MEMORANDUM RECORDS and not Contribution to plan (xx)
reflected in the general ledger accounts. Accrued/ Prepaid Benefit cost xx
-contains the following: During the year
 - Fully recognized and included in service
Accrued/ Prepaid Benefit cost-Jan 1 (xx)xx cost in the computation of employee
CR/ DR adjustment-Accrued/Prepaid (xx)xx benefit expense
Benefit cost during the year Settlement price- includes any plan assets
Accrued/ Prepaid Benefit cost- Dec 31 (xx)xx transferred and any payments made directly by
the entity in connection with the settlement.
RECONCILIATION
FVPA-Jan 1 XX SP < PV DBO= Settlement Gain
Contribution to plan xx SP> PV DBO = Settlement loss
Actual return on PA xx
Remeasurement gain PA xx Surplus in a defined benefit plan must not
(**Interest Income FVPA ) xx exceed the asset ceiling determined by using
Settlement price DBO (xx) the discount rate in the measurement of the
Benefits paid (xx) defined benefit obligation.
FVPA- Dec 31 xx
Asset ceiling-the PV of any economice benefits
PBO- Jan 1 xx available in the form of refunds from the plan or
Current service cost xx reductions in future contributions to the plan.
Past service cost xx
Interest expense PBO xx Any change in the effect of asset ceiling
Benefits paid (xx) excluding interest on the effect of the asset
PV of DBO settled (xx) ceiling is a remeasurement-OCI
Actuarial loss PBO increase xx  Effect of asset ceiling x discount rate =
PBO- Dec 31 xx interest on the effect of the asset ceiling
Increase in EoAC= remeasurement loss−
FVPA- Dec 31 xx interest expense on EoAC
PBO- Dec 31 (xx) Decrease in EoAC= remeasurement gain+
Prepaid/ Accrued benefit cost xx interest expense on EoAC

Effect of asset ceiling Jan 1 xx

Settlement of plan- a transaction that Effect of asset ceiling Dec 31 xx
eliminates all further legal or constructive Total change in the effect xx
obligations for part or all of the benefits of asset ceiling
provided under a defined benefit plan. Interest expense on EoAC (xx)
-a lumpsum payment to plan participants in Remeasurement LOSS on xx
exchange for their rights to receive specified asset ceiling
postemployment but lumpsum payment made
under the terms of the existing defined benefit EoAC > credit in memo record>same
plan is not a settlement category as PBO
Portion attributable to the interest expense
Gain or loss on settlement on EoAC is included in P/L as component of
-recognized when settlement occurs employee benefit expense.
-=settlement price−¿PV of the defined benefit The remainder is a remeasurement-OCI.
obligation on the date of settlement
Remeasurement gain on PA xx h) Maturity profile of the defined benefit
Actuarial gain decrease in PBO xx obligation.
Remeasurement loss on (xx) A retirement benefit plan may contain
The change in the EoAC characteristics of both defined contribution plan
Net remeasurement gain-OCI xx and DBP, such a hybrid plan is deemed to be a
DBP.
PAS 19- application is retrospectively Report of defined contribution plan
Any transitional effect of the application of -contains a statement of net assets available for
the amendment under PAS19 shall be benefits and a description of the funding policy.
accounted for as adjustment of the beg. -plan investments shall be carried at FV.
Balance of retained earnings like the Report of defined benefit plan
unamortized past service cost and the -shall contain either:
unrecognized actuarial loss which will be A statement that shows the net assets available
eliminated and accounted for for benefits, the actuarial PV of promised
retrospectively. benefits distinguishing between vested and
Carrying amount of assets need not to be novested benefits and the resulting excess or
adjust for changes in employee benefit deficit.
costs that were included in the initial CA of A statement of net assets available for benefits,
the assets. Inventory and PPE that include including either a note disclosing the actuarial
employee benefit costs in their CA do not PV promised vested and nonvested benefits or
have to be restated. a reference to this info in an accompanying
actuarial report.
All actuarial gains and losses during the year
are fully recognized in OCI. FREQUENCY OF ACTUARIAL VALUATION
-not incumbent
DISCLOSURES- Defined benefit plan -IF ACTUARIAL Valuation has not been prepared
a) Characteristics of the DBP and risks on the date of the report the most recent
associated with the plan valuation is used and the date of actuarial
b) Reconciliations for the FVPA and the PV valuation is disclosed.
of DBO
c) Separate showing of current service DISCLOSURE
cost, past service cost, interest expense (retirement plan, defined contribution and
or income and remeasurements. defined benefit):
d) Disaggregation of the FVPA into classes a) Statement of changes in net assets
that distinguish the nature and risks of available for benefits
assets. b) Summary of significant accounting
e) A sensitivity analysis for each policies
siginificant actuarial assumption c) Description of the plan and the effect
showing the effect on the DBO for any of any changes in the plan during the
change period.
f) Description of any funding arrangement
and policy
g) Expected contribution to the plan for
the next period