IAS 19 Employee Benefits

Short-term employee benefits

Short-term employee benefits
Short-term employee benefits are employee benefits that are expected to be settled wholly
within twelve months after the end of the annual reporting period in which the employees
rendered the related services

Wages and Profit sharing and

salaries bonuses
(includes
contributions)

Short term - no
discounting (i.e.
no TVM)
Paid annual Non-monetary
leave and paid benefits
sick leave (housing, cars,
free or
subsidised
goods such as
meals)

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An employee’s payslip
• A payslip identifies the employee by name, employee number, ID number, tax number, level or title,
department etc.
• An employee’s start date
• The relevant medical aid name (some may show the number of dependents as well)
• The basic pay + any other allowances or fringe benefits (recurring)
• Sometimes there are non-recurring income items such as a bonus
• The deductions (tax, UIF, medical aid, pension contributions etc).
• Any other contributions made by the employer
• Net pay
• It may also show the accumulated earnings and deductions (especially for tax)
• It may show any leave day balances (this may also be shown on another system)

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An employee’s payslip

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Class example 1 – Descriptive Accounting 10.1

Mr Salary is an employee in the employ of Beta Ltd. The Beta Ltd contributes the same amount as the employee
following is the salary slip of Mr Salary for July. to the provident fund, medical aid fund and
unemployment insurance fund
R
R
Gross salary 10 000
Provident fund contribution 750
Provident fund contribution (750)
Medical aid fund contribution 900
Medical aid fund contribution (900)
Unemployment insurance fund contribution 100
Unemployment insurance fund contribution (100)
Employee tax (2 000)
Net salary paid over to Mr Salary 6 250

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Class example 1 – Descriptive Accounting 10.1

The first journal is to create obligations for salary and the related deductions:

Dr Cr
R R
Short-term employee benefit costs (P/L) 10 000
SARS payable (SFP) 2 000
Provident fund payable (SFP) 750
Recognise the
Medical aid fund payable (SFP) 900 liabilities that
need to be paid
UIF payable (SFP) 100 to the various
counterparties
Salary due to employee (SFP) 6 250
Recognise obligation for amounts deducted from gross salary of Mr Salary
for the month

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Class example 1 – Descriptive Accounting 10.1

The second journal is to recognise obligations for employee’s contributions:

Dr Cr
R R
Short-term employee benefit costs (P/L) 1 750
Provident fund payable (SFP) 750
Recognise the
Medical aid fund payable (SFP) 900 liabilities that
need to be paid
UIF payable (SFP) 100 to the various
counterparties
Recognise employer’s contribution i.r.o. sundry items from salary of Mr
Salary for the month

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Class example 1 – Descriptive Accounting 10.1
The third journal is to recognize payments to the counterparties, which includes the payment of the salary to
the employee:

Dr Cr
R R
SARS payable (SFP) 2 000
Provident fund payable (SFP) 1 500 Derecognise the liabilities
to counterparties upon
Medical aid fund payable (SFP) 1 800 payment
UIF payable (SFP) 200
Salary due to employee (SFP) 6 250
Bank (SFP) 11 750
Recognise obligation for amounts deducted from gross salary of Mr Salary
for the month

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Leave pay accrual
Short-term paid absences – Employer continues to pay employee during the period that the employee takes leave
(i.e. is absent) from work. For example, an employer may offer its employees 15 days annual leave per year.

Leave pay

Accumulating Non-accumulating
Unused leave can be carried forward Unused leave is forfeited (lost) if not
and used in a future period taken by the at the end of the period

Vesting Non-vesting
Employees are entitled to a cash Employees are not entitled to a cash No provision is recognised
payment upon leaving the employer. payment upon leaving the employer.

Recognise a provision for the full Recognise a provision for the amount
amount of leave days of days expected to be used as leave
Use the cost to company for days Use the cost to company
expected to be taken as leave and
gross basic salary for days expected
to be paid

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Class example 2
Met Ltd has an employee by the name of Mr Manta.
• Mr Manta earns R480 000 per annum (i.e. R40 000 per month) which includes employee medical aid
contributions of R3 000 per month.
• Met Ltd contributes an additional R24 000 per annum to his medical aid (i.e. R2 000 per month).
• Assume there are 260 working days per annum.
• Mr Manta is awarded 20 days leave per annum and can be carried forward indefinitely (i.e. accumulating).
• Unutilised leave days are paid out at the end of year 2 or when Mr Manta resigns (i.e. vesting).
• Mr Manta used 8 days as leave during June. No additional leave days were taken during the year.
• At the end of year 1, Met Ltd expects Mr Manta to use 8 days of leave in year 2 and will take the equivalent
of 4 days as a cash payment.
• The % increase in salary and contributions expected for Year 2 is 6.5%.

1. Prepare the journal entries for January of Year 1

2. Prepare the journal entries for June of Year 1
3. Calculate the amount of the leave pay accrual at the end of Year 1.

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Class example 2 - solution
1. Prepare the journal entries for January of Year 1

January Dr Cr
R R
Employee benefit expense (P/L) 42 000
Salary due to employee/Bank(SFP) 37 000
Medical aid fund payable/Bank (SFP) 5 000
Recognise Mr Manta’s monthly salary + employee and employer medical aid contributions for
January

Employee benefit expense (P/L) 3 231

Leave pay accrual (SFP) 3 231
Recognise the leave accrued by Mr Manta for January
(480 000 + 24 000)/260 days x 20/12 (days accrued per month)

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Class example 2 - solution
2. Prepare the journal entries for June of Year 1
The same 2 journals in January (as above) will be posted. This is because Mr Manta received a cash
salary of R37 000, made employee contributions of R3 000, Met Ltd contributed R2 000 on behalf of
Mr Manta. Furthermore, Mr Manta accrued additional leave days in June just like any other month.
The following journal is recognised due to the 8 leave days taken in June.

Dr Cr
R R
Leave pay accrual (SFP) 15 508
Employee benefit expense (P/L) 15 508
Recognise the leave used by Mr Manta during June See how the accrual decreases when Mr Manta takes
leave. This makes sense because Mr Manta is using up
(480 000 + 24 000)/260 x 8 days used his leave days.
Furthermore, see how the employee benefit expense
decreases. This makes sense because we need to
reduce the expense for the 8 days that Mr Manta did
not provide any services to Met Ltd.

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Class example 2 - solution
3. Calculate the amount of the leave pay accrual at the end of Year 1.
Number of days expected to be taken as leave in Year 2 8
Number of days expected to be taken as cash end of Year 2 4
Total leave days unutilized at the end of Year 1 12

Leave gets used at the cost to company = (480 000 + 24 000) x

106.5% = 536 760
Provision for days expected to be used = 536 760/260 x 8 days 16 516

Leave gets paid at the gross basic salary = 480 000 x 106.5% = 511
200
Provision for days expected to be paid = 511 200/260 x 4 days 7 865

Total provision at the end of Year 1 24 381

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Profit-sharing and bonus plans
Profit sharing and bonuses are given to employees as a reward for services rendered.

For ACC200 - only short-term profit sharing and bonus plans are in the scope (i.e. payable within 12
months of reporting date)

Should be recognised when:

a) the entity has a present legal or constructive obligation to make such payments as a result of past events;
and
b) a reliable estimate of the obligation can be made (via a formula, amount is determined by the entity before
authorization of AFS, or an amount can be established based on past practices)
A present obligation exists when, and only when, the entity has no realistic alternative but to make the
payments.
Some employees may leave before year-end and will not be
entitled to these amounts. The entity takes these estimations
into account

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Textbook examples

Do the following examples in Descriptive accounting:

Example 10.1 – 10.6

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In summary

Source: IFRS Box IAS 19

Employee benefits
Questions?