Objective
IAS 19 prescribes the accounting and disclosure requirements for employee benefits, including short-term benefits, post-employment benefits, other long-term benefits, and termination benefits, ensuring that the financial statements reflect the cost of employing staff and obligations to employees.
🧾 1. Scope
Applies to all employee benefits, whether provided directly by the employer or through third-party plans.
Types of Employee Benefits
| Benefit Type | Examples |
|---|---|
| Short-term benefits | Wages, salaries, bonuses, social security contributions, paid leave |
| Post-employment benefits | Pensions, retirement plans, medical benefits after retirement |
| Other long-term benefits | Long-service leave, long-term disability, deferred bonuses |
| Termination benefits | Severance pay, early retirement packages |
⚙️ 2. Short-Term Employee Benefits
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Expected to be settled within 12 months of the reporting period.
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Recognized as expense when employees render service.
Example 1:
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Monthly salary = $50,000
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Bonus payable = $5,000
Journal Entry:
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Includes accrued paid leave.
🔄 3. Post-Employment Benefits
A. Defined Contribution Plans
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Employer contributes fixed amounts to a separate fund.
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Obligation is limited to contribution; no further liability.
Example 2:
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Contribution to pension plan = 10% of salary $50,000 → $5,000
B. Defined Benefit Plans
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Employer promises specific benefits at retirement.
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Obligation depends on salary, service years, and actuarial assumptions.
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Requires actuarial valuation of present value of obligations.
Journal Example – Service Cost & Interest:
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Service cost = $20,000
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Interest cost on obligation = $5,000
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Remeasurements (actuarial gains/losses) recognized in OCI.
🧩 4. Other Long-Term Benefits
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Include long-service leave, disability benefits, deferred bonuses.
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Measured like defined benefit plans using actuarial assumptions if material.
Example 3:
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Long-service leave provision = $10,000
⚖️ 5. Termination Benefits
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Paid when employment is terminated earlier than normal or as part of a restructuring.
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Recognize at the earlier of:
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Offer to encourage voluntary termination
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Recognition of restructuring provision
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Example 4:
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Severance pay to laid-off staff = $30,000
📊 6. Measurement of Defined Benefit Obligations
Key Elements:
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Present value of defined benefit obligation (DBO)
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Fair value of plan assets (if funded)
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Net defined benefit liability/asset = DBO – Plan assets
Example 5:
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DBO = $100,000
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Plan assets = $80,000
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Net liability = $20,000
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Actuarial gains/losses recognized in OCI, not P/L.
🧾 7. Disclosure Requirements
Entities must disclose:
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Type of plans (defined contribution or defined benefit)
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Reconciliation of opening and closing balances of DBO
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Plan assets details and fair value
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Amounts recognized in P/L and OCI
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Actuarial assumptions used (discount rate, salary growth, mortality)
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Funding arrangements and expected contributions
📋 8. Summary Table – Employee Benefits
| Benefit Type | Recognition | Measurement | Example |
|---|---|---|---|
| Short-term | Expense when service rendered | Amount due | Salary $50,000, bonus $5,000 |
| Defined contribution | Expense = contributions payable | Fixed contribution | 10% pension contribution |
| Defined benefit | Expense = service + interest cost; OCI for remeasurements | Actuarial PV of obligations minus plan assets | DBO $100,000, Plan assets $80,000 |
| Other long-term | Expense when employee earns right | Actuarial | Long-service leave $10,000 |
| Termination | Expense when obligation arises | Amount payable | Severance $30,000 |
🎯 9. Key Points
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Distinguish between short-term, long-term, post-employment, and termination benefits.
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Defined contribution plans → simple expense recognition.
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Defined benefit plans → actuarial valuation, recognize service and interest costs in P/L, remeasurements in OCI.
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Disclosure is essential for transparency about obligations and funding.