t7 - Semester 1 / 09 EMPLOYEE BENEFITS HPH CHAPTER 15 -...

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1 Semester 1 / 09 EMPLOYEE BENEFITS HPH CHAPTER 15 - QUESTIONS 3 AASB 119 ‘Employee Benefits’ contains some general criteria for the recognition, measurement and disclosure of expenses and liabilities associated with employee benefits. AASB 119 also provides guidance on how those general criteria may be applied to specific types of employee entitlements. These include wages and salaries (including non-monetary benefits), compensated absences (annual leave, sick leave and long-service leave), profit sharing and bonus plans (other than equity-based compensation plans), termination benefits and post-employment benefits (superannuation, medical care). In essence, the standard requires an employer to recognise a liability when an employee provides a service in exchange for employee benefits to be paid in the future. An expense is also to be recognised when the entity consumes the economic benefits from the service provided by an employee in exchange for employee benefits (Objective, AASB 119). The essential requirement of AASB 119 is that short-term employee benefits liabilities arising from entitlements such as wages and salaries, annual leave and sick leave that are expected to be settled within twelve months after the end of the period in which the employees render the related service (para. 7) are measured at the undiscounted amount(i.e. nominal amounts). Long-term employee benefits or those entitlements that fall due more than 12 months after the reporting date must be reported at their discounted amounts. Examples include long service leave and post-employment benefits. 10 The eventual payment of vesting sick leave entitlements is certain. It will be paid as sick leave or in cash on retirement or resignation. The eventual payment of non-vesting sick leave entitlements is less certain. If sick leave is not taken, it will be lost by the employee on retirement or resignation. There will be some incentive for an employee to use up accumulated sick leave by taking ‘sickies’ as resignation or retirement approaches. With non-vesting sick leave entitlements, the expense and liability calculation should include an estimate based on past experience of the probability that the leave will be taken. With vesting sick leave, the probability of it being taken is 1. The two methods are identical in principle. They simply involve different probability inputs.
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2 14 The pre-conditional period is the early years of employment when an employee has no entitlement to long-service leave. If the employee resigns or retires during this period, there is no entitlement to long-service leave. The pre-conditional period (usually up to five or seven years) differs between industrial awards. The
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t7 - Semester 1 / 09 EMPLOYEE BENEFITS HPH CHAPTER 15 -...

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