Question Tag: Employee Benefits

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CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets 16,500
Employer contributions to plan 550,000
Current service cost 600,000
Interest on plan liability 18,000
Fair value of plan assets at 31/12/2018 580,000
Present value of plan obligation at 31/12/2018 620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

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BL – May 2015 – L1 – SB – Q6e – Employment Law

Identify situations when an employee is entitled to redundancy benefits.

State any THREE instances in which an employee may be entitled to redundancy benefits. (3 Marks)

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PT – April 2022 – L2 – Q3a – Income Tax Liabilities

Explain the tax treatment for overtime allowance and bonus payments in Ghana.

a) Explain the tax treatment for Overtime Allowance Payment and Bonus Payment.
(6 marks)

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PT – April 2022 – L2 – Q3c – Income Tax Liabilities

Determine the tax implication of overtime allowance paid to Bawa in February 2021.

c) Bawa is a junior staff member of Blinks Ltd. Her monthly basic salary is GH¢2,000. She was paid an overtime allowance totalling GH¢500 during the month of February 2021.

Required:
What is the tax implication of the overtime allowance paid?
(3 marks)

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PT – April 2022 – L2 – Q3d – Income Tax Liabilities

Calculate the tax liability on Eunice Danso's bonus income for 2021.

Eunice Danso works with Gyidi Ltd and earns an annual basic salary of GH¢50,000. She was paid a bonus of GH¢6,000 in 2021.

Required:
Determine the tax liability on the bonus. (3 marks)

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PT – July 2023 – L2 – Q3a – Income Tax Liabilities

Calculation of loan benefits for three employees based on their loan details and income.

The table below shows the incomes of three employees of Agana Ltd in 2022 year of assessment.

Income Details Adom Aseda Ayeyie
Basic Salary (GH¢) 120,000 160,000 180,000
Medical Allowance (5% of Basic Salary) 6,000 8,000 9,000
Rent Allowance (10% of Basic Salary) 12,000 16,000 18,000
Fuel Allowance (15% of Basic Salary) 18,000 24,000 27,000
Total Cash Emoluments 156,000 208,000 234,000

Besides the cash emoluments stated above, the employees received loans from the employer as follows:

i) Adom received a loan of GH¢24,000 at a rate of 5% payable within 12 months.
ii) Aseda received a loan of GH¢48,000 at a rate of 8% payable within 24 months.
iii) Ayeyie received a loan of GH¢100,000 at a rate of 10% payable within 36 months. This loan is in addition to an outstanding loan of GH¢50,000 with the same terms and conditions during the previous twelve months. (Assume that the statutory rate is 30% per annum).

Required:
Determine the loan benefits applicable to each of the three employees for the 2022 year of assessment. (16 marks)

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CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits

Calculate the net actuarial gain/loss and net pension liability for a defined benefit plan under IAS 19.

Zumah Ltd operates a defined benefit pension plan for its employees. On 1 April 2015, the fair value of the pension plan assets was GH¢8,200,000, and the present value of the pension plan liabilities was GH¢8,500,000. The actuary estimated that the service cost for the year to 31 March 2016 was GH¢2,100,000. The pension plan paid GH¢500,000 to retired members, and Zumah Ltd paid GH¢1,900,000 in contributions to the pension plan in the year to 31 March 2016. The actuary estimated that the discount rate for the year to 31 March 2016 was 6%.

On 31 March 2016, Zumah Ltd announced improvements to the benefits offered by the pension plan to all its members. The actuary estimated that the past service cost associated with these improvements was GH¢2,000,000. At 31 March 2016, the fair value of the pension plan assets was GH¢10,200,000, and the present value of the pension plan liabilities (including the past service costs) was GH¢12,500,000.

Required:
In accordance with IAS 19 Employee Benefits:
i) Calculate the net actuarial gain or loss that will be included in Zumah Ltd’s other comprehensive income for the year ended 31 March 2016. (3 marks)
ii) Calculate the net pension asset or liability that will be included in Zumah Ltd’s statement of financial position as at 31 March 2016. (2 marks)

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CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

On 1 April 2018, Mariam Plc granted 500 share appreciation rights (SARs) to its 300 employees. All of the rights vested on 31 March 2020 and can be exercised from 1 April 2020 up to 31 March 2022. At the grant date, the value of each SAR was GH¢10, and it was estimated that 5% of the employees would leave during the vesting period. The fair value of the SARs is as follows:

Date Fair Value of SAR (GH¢)
31 March 2019 9
31 March 2020 11
31 March 2021 12

All the employees who were expected to leave the employment did leave the company as expected before 31 March 2020. On 31 March 2021, 60 employees exercised their options when the intrinsic value of the right was GH¢10.50 and were paid in cash. Mariam Plc is, however, confused as to whether to account for the SARs under IFRS 2: Share-based Payment or IFRS 13: Fair Value Measurement and would like to be advised as to how the SARs should have been accounted for from the grant date to 31 March 2021.

Required:

Advise Mariam Plc on how the above transactions should be accounted for in its financial statements with reference to relevant International Financial Reporting Standards (IFRS).

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CSME – May 2023 – L1 – SB – Q5 – Ethics in Business

Differences between creative and critical thinking and their impact on employer benefits.

Creative and critical thinking are essential skills that chartered accountants should possess for optimal performance.

(a) Differentiate between creative and critical thinking. (4 Marks)

(b) Explain the modes through which creative thinking is expressed. (8 Marks)

(c) Explain how the creative thinking of employees benefits their employers. (3 Marks)

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CR – May 2020 – L3 – Q2c – Defined Benefit Pension Plan

Recommend the accounting treatment for a defined benefit pension plan with supporting calculations.

Nzema prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) with a financial year end of 31 December 2018. On 1 January 2018, Nzema commenced a defined benefit pension plan for a number of head office employees. Under the pension scheme, Nzema has an obligation to provide these staff with agreed post-employment benefits. Nzema carries the actuarial and investment risk associated with the pension scheme.

The following information has been compiled from workings by Nzema’s accounting staff and actuarial reports for the 2018 financial year:

GH¢
Interest income on plan assets 16,500
Employer contributions to plan 550,000
Current service cost 600,000
Interest on plan liability 18,000
Fair value of plan assets at 31/12/2018 580,000
Present value of plan obligation at 31/12/2018 620,000

The Accountant was not sure which accounting standard to apply when accounting for the pension scheme. The only adjustment made to account for the scheme was to expense the company’s contributions of GH¢550,000 for the 2018 financial year in the Statement of Profit or Loss and Other Comprehensive Income and to credit the ‘Cash’ account.

Required:
Recommend, with appropriate calculations, the necessary accounting treatment for this accounting issue.

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BL – May 2015 – L1 – SB – Q6e – Employment Law

Identify situations when an employee is entitled to redundancy benefits.

State any THREE instances in which an employee may be entitled to redundancy benefits. (3 Marks)

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PT – April 2022 – L2 – Q3a – Income Tax Liabilities

Explain the tax treatment for overtime allowance and bonus payments in Ghana.

a) Explain the tax treatment for Overtime Allowance Payment and Bonus Payment.
(6 marks)

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PT – April 2022 – L2 – Q3c – Income Tax Liabilities

Determine the tax implication of overtime allowance paid to Bawa in February 2021.

c) Bawa is a junior staff member of Blinks Ltd. Her monthly basic salary is GH¢2,000. She was paid an overtime allowance totalling GH¢500 during the month of February 2021.

Required:
What is the tax implication of the overtime allowance paid?
(3 marks)

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PT – April 2022 – L2 – Q3d – Income Tax Liabilities

Calculate the tax liability on Eunice Danso's bonus income for 2021.

Eunice Danso works with Gyidi Ltd and earns an annual basic salary of GH¢50,000. She was paid a bonus of GH¢6,000 in 2021.

Required:
Determine the tax liability on the bonus. (3 marks)

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PT – July 2023 – L2 – Q3a – Income Tax Liabilities

Calculation of loan benefits for three employees based on their loan details and income.

The table below shows the incomes of three employees of Agana Ltd in 2022 year of assessment.

Income Details Adom Aseda Ayeyie
Basic Salary (GH¢) 120,000 160,000 180,000
Medical Allowance (5% of Basic Salary) 6,000 8,000 9,000
Rent Allowance (10% of Basic Salary) 12,000 16,000 18,000
Fuel Allowance (15% of Basic Salary) 18,000 24,000 27,000
Total Cash Emoluments 156,000 208,000 234,000

Besides the cash emoluments stated above, the employees received loans from the employer as follows:

i) Adom received a loan of GH¢24,000 at a rate of 5% payable within 12 months.
ii) Aseda received a loan of GH¢48,000 at a rate of 8% payable within 24 months.
iii) Ayeyie received a loan of GH¢100,000 at a rate of 10% payable within 36 months. This loan is in addition to an outstanding loan of GH¢50,000 with the same terms and conditions during the previous twelve months. (Assume that the statutory rate is 30% per annum).

Required:
Determine the loan benefits applicable to each of the three employees for the 2022 year of assessment. (16 marks)

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CR – May 2018 – L3 – Q2a – IAS 19 Employee Benefits

Calculate the net actuarial gain/loss and net pension liability for a defined benefit plan under IAS 19.

Zumah Ltd operates a defined benefit pension plan for its employees. On 1 April 2015, the fair value of the pension plan assets was GH¢8,200,000, and the present value of the pension plan liabilities was GH¢8,500,000. The actuary estimated that the service cost for the year to 31 March 2016 was GH¢2,100,000. The pension plan paid GH¢500,000 to retired members, and Zumah Ltd paid GH¢1,900,000 in contributions to the pension plan in the year to 31 March 2016. The actuary estimated that the discount rate for the year to 31 March 2016 was 6%.

On 31 March 2016, Zumah Ltd announced improvements to the benefits offered by the pension plan to all its members. The actuary estimated that the past service cost associated with these improvements was GH¢2,000,000. At 31 March 2016, the fair value of the pension plan assets was GH¢10,200,000, and the present value of the pension plan liabilities (including the past service costs) was GH¢12,500,000.

Required:
In accordance with IAS 19 Employee Benefits:
i) Calculate the net actuarial gain or loss that will be included in Zumah Ltd’s other comprehensive income for the year ended 31 March 2016. (3 marks)
ii) Calculate the net pension asset or liability that will be included in Zumah Ltd’s statement of financial position as at 31 March 2016. (2 marks)

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CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

On 1 April 2018, Mariam Plc granted 500 share appreciation rights (SARs) to its 300 employees. All of the rights vested on 31 March 2020 and can be exercised from 1 April 2020 up to 31 March 2022. At the grant date, the value of each SAR was GH¢10, and it was estimated that 5% of the employees would leave during the vesting period. The fair value of the SARs is as follows:

Date Fair Value of SAR (GH¢)
31 March 2019 9
31 March 2020 11
31 March 2021 12

All the employees who were expected to leave the employment did leave the company as expected before 31 March 2020. On 31 March 2021, 60 employees exercised their options when the intrinsic value of the right was GH¢10.50 and were paid in cash. Mariam Plc is, however, confused as to whether to account for the SARs under IFRS 2: Share-based Payment or IFRS 13: Fair Value Measurement and would like to be advised as to how the SARs should have been accounted for from the grant date to 31 March 2021.

Required:

Advise Mariam Plc on how the above transactions should be accounted for in its financial statements with reference to relevant International Financial Reporting Standards (IFRS).

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