Question

In: Accounting

Define long and short term employment benefits. Discuss how these are accounted for under international financial...

Define long and short term employment benefits. Discuss how these are accounted for under international financial reporting standards (IFRS 2 and IAS 19) and the impact of the accounting treatments on the financial statements. Critically assess the key issues in the implementation of these standards.

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Expert Solution

Short term and log term employee benefits under IAS 19:

Short-term employee benefits are those expected to be settled wholly before twelve months after the end of the annual reporting period during which employee services are rendered, but do not include termination benefits.Examples include wages, salaries, profit-sharing and bonuses and non-monetary benefits paid to current employees.

The undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in an accounting period is recognised in that period. The expected cost of short-term compensated absences is recognised as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur, and includes any additional amounts an entity expects to pay as a result of unused entitlements at the end of the period.

Other Long Term Benefits which are due after 12 months from the end of year of services, such as sabbatical leave and long term service awards. IAS 19  prescribes a modified application of the post-employment benefit model described above for other long-term employee benefits:

  • the recognition and measurement of a surplus or deficit in an other long-term employee benefit plan is consistent with the requirements outlined above
  • service cost, net interest and remeasurements are all recognised in profit or loss (unless recognised in the cost of an asset under another IFRS), i.e. when compared to accounting for defined benefit plans, the effects of remeasurements are not recognised in other comprehensive income.

As per IFRS 2 also these are the same with minute differences.

This can be better explained if there is an example.


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