Topic: Employee Benefits (IAS 19)

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  • 20 Marks

CR – May 2019 – L3 – Q4 – Employee Benefits (IAS 19)

Classify a post-employment benefit plan, reconcile plan obligations, and explain the treatment of re-measurement gains or losses in line with IAS 19.

The Central Bank of Kangora (CBK) operates a post-employment benefit plan whereby employees are entitled to an amount upon completion of employment. Each employee is paid an amount equal to 150% of the annual pay at the time of retirement multiplied by the number of years in service. The plan is not funded.

CBK uses a professional actuary to determine its liability under the plan at the end of every reporting period. The report of the actuary shows that the plan obligation was ₦620 million and ₦906 million as at 1 January, 2018 and 31 December, 2018 respectively. The current and past service cost for the year was ₦108 million. The discount rates were 8% and 12% as at 1 January, 2018 and 31 December, 2018 respectively.

CBK paid a total benefit of ₦48 million during the year.

The financial controller is struggling to complete the reconciliation and accounting entries for the plan. He is particularly confused about the concept of re-measurement and its accounting treatment.

Required:
a. Differentiate between a defined contribution plan and a defined benefit plan and advise CBK on how its post-employment plan should be classified. (5 Marks)
b. Complete the reconciliation and show the journal entries required to record the transactions for the year ended 31 December, 2018. (10 Marks)
c. Discuss the components of re-measurement gain or loss and state the accounting treatment of a re-measurement gain or loss arising on a defined benefit plan. (5 Marks)

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  • 20 Marks

CR – May 2023 – L3 – Q3 – Employee Benefits (IAS 19)

Discuss accounting treatments for investment properties and pension plans, including calculations and financial statement impacts.

You are the Financial Controller of Gongon Group. On January 2, 2021, you are busy preparing the financial statements for the year ended December 31, 2020. You are under a lot of pressure as you have been asked to present the draft financial statements to the Board of Directors in two days’ time.

The first draft of the financial statements for each of the three companies has been prepared and is now on your table. You have also compiled a list of outstanding issues that you need to consider before presenting the financial statements to the Board.

Outstanding Issues:

Here’s the rewritten version of the First Issue:

First Issue: Investment Properties and Changes in Use

Gongon Group holds three investment properties in its financial statements. These properties are measured at fair value in line with IAS 40 – Investment Properties, while owner-occupied properties are measured at cost less accumulated depreciation and impairment losses. Currently, the properties are presented at their 2019 year-end valuations, with no adjustments for 2020.

Details of the Properties

  1. Property A (Commercial Warehouse):
    • Location: Apapa
    • Use Change: Reassigned as office space for the company during 2020. Tenants vacated on May 1, 2020.
    • Valuations:
      • January 1, 2020: ₦8,000,000
      • May 1, 2020: ₦7,600,000
      • December 31, 2020: ₦7,400,000
    • Depreciation Policy: The company applies a 2% annual depreciation rate, calculated monthly for owner-occupied properties.
  2. Property B:
    • Acquisition Year: 2014
    • Valuations:
      • January 1, 2020: ₦9,000,000
      • December 31, 2020: ₦8,800,000
    • Planned Disposal:
      • Property was vacant from September 2020 and put on the market in October 2020 with an asking price of ₦8,800,000.
      • Estimated disposal costs: ₦600,000.
      • No firm offers had been made by year-end.
  3. Property C:
    • Valuation: Last valued at ₦18,500,000 in December 2018.

Draft Statements of financial position at December 31, 2020

Extract of draft statement of profit or loss and other comprehensive income for the year ended December 31, 2020

Second Issue: Pension Scheme Accounting Treatment

On January 1, 2020, Gongon PLC commenced a defined benefit plan for several head office employees. Under the scheme, Gongon PLC is obligated to provide post-employment benefits to these staff members. The company manages the actuarial and investment risks associated with the pension scheme.

Details of the Pension Scheme

Details ₦’000
Interest Income on Plan Assets 330
Employer’s Contribution to Plan 11,000
Current Service Cost 12,000
Interest on Plan Liability 360
Fair Value of Plan Assets (31/12/2020) 11,600
Present Value of Plan Obligation (31/12/2020) 12,400

Current Accounting Treatment

The Chief Accountant was uncertain about the appropriate accounting standard to apply for the pension scheme. The only adjustment made for 2020 was:

  • Expensing the Employer’s Contribution of ₦11 million in the statement of profit or loss and other comprehensive income.
  • Crediting the corresponding cash account.

The current treatment does not comply with the requirements of IAS 19 – Employee Benefits, which mandates more comprehensive reporting for defined benefit plans.

Required:
(a) Discuss and analyze the required accounting treatment of the first issue, showing relevant calculations and the impact on Gongon PLC’s financial statements as of December 31, 2020. (12 Marks)

(b) Review the accounting treatment of the second issue (pension plan) and make necessary disclosures in accordance with the relevant accounting standard. (8 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q4 – Employee Benefits (IAS 19)

Discuss pension contributions under IAS 19 and the principles and content of CSR reporting.

a. DOVE-TAIL (Nigeria) Limited is into production of Cashew Nuts for global consumption. The entity has 3,000 employees on the payroll who are qualified for an approved defined contribution plan being operated. The company makes an annual pension contribution of N28,000 per employee. In 2016, the company paid a total contribution amounting to N150 million, as well as N119 million and N54 million in 2017 and 2018, respectively.

Required:
In accordance with IAS 19, how should the pension contribution be treated and accounted for in the financial statements of the company?
(10 Marks)

b. There are no international standards on Corporate Social Responsibility (CSR) reporting. However, there is a strong trend toward the provision of more information on a statutory or voluntary basis, and this trend in corporate reporting is likely to continue in the future. Therefore, companies are encouraged to provide disclosures and report on environmental, social, and corporate governance issues. To this effect, voluntary guidelines for the content of and principles to be applied for social and environmental reports are given.

Required:
i. Explain the principles of corporate social responsibility. (5 Marks)
ii. Discuss the suggested contents of social and environmental reports. (5 Marks)

(Total 20 Marks)

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  • 15 Marks

CR – Nov 2017 – L3 – Q5 – Employee Benefits (IAS 19)

Explain and distinguish between defined contribution and defined benefit plans, providing IAS 19 accounting treatments for two pension plans.

Tinubun Plc., a public limited company, operates two pension plans.

Pension Plan 1
The terms of the plan are as follows:

  1. Employees contribute 6% of their salaries to the plan.
  2. Tinubun Plc. contributes, currently, the same amount to the plan for the benefit of the employees.
  3. On retirement, employees are guaranteed a pension based on the number of years’ service with the company and their final salary.
  4. This plan was closed to new entrants from October 31, 2016, but it remains open for future service accrual for employees already in the scheme.

The following details relate to the plan in the year ending October 31, 2017:

Description Amount (₦’m)
Present value of obligation at Nov 1, 2016 200
Present value of obligation at Oct 31, 2017 240
Fair value of plan assets at Nov 1, 2016 190
Fair value of plan assets at Oct 31, 2017 225
Current service cost 20
Pension benefits paid 19
Total contributions paid to the scheme 17

Actuarial gains and losses are recognized in the Statement of Other Comprehensive Income.

Pension Plan 2
Under the terms of this plan, Tinubun Plc. does not guarantee any return on the contributions paid into the fund. The company’s legal and constructive obligation is limited to the amount contributed to the fund. The following details relate to this scheme:

Description Amount (₦’m)
Fair value of plan assets at Oct 31, 2017 21
Contributions paid by company 10
Contributions paid by employees 10

The discount rates for the two plans are as follows:

Date Discount Rate
October 31, 2017 6%
November 1, 2016 5%

Required:
a. Explain the nature and differences between a defined contribution plan and a defined benefit plan with specific reference to the company’s two schemes.
(7 Marks)

b. Show the accounting treatments for the two Tinubun Plc. pension plans for the year ended October 31, 2017 under IAS 19 ‘Employee Benefits’.
(8 Marks)

Total: 15 Marks

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  • 20 Marks

CR – May 2019 – L3 – Q4 – Employee Benefits (IAS 19)

Classify a post-employment benefit plan, reconcile plan obligations, and explain the treatment of re-measurement gains or losses in line with IAS 19.

The Central Bank of Kangora (CBK) operates a post-employment benefit plan whereby employees are entitled to an amount upon completion of employment. Each employee is paid an amount equal to 150% of the annual pay at the time of retirement multiplied by the number of years in service. The plan is not funded.

CBK uses a professional actuary to determine its liability under the plan at the end of every reporting period. The report of the actuary shows that the plan obligation was ₦620 million and ₦906 million as at 1 January, 2018 and 31 December, 2018 respectively. The current and past service cost for the year was ₦108 million. The discount rates were 8% and 12% as at 1 January, 2018 and 31 December, 2018 respectively.

CBK paid a total benefit of ₦48 million during the year.

The financial controller is struggling to complete the reconciliation and accounting entries for the plan. He is particularly confused about the concept of re-measurement and its accounting treatment.

Required:
a. Differentiate between a defined contribution plan and a defined benefit plan and advise CBK on how its post-employment plan should be classified. (5 Marks)
b. Complete the reconciliation and show the journal entries required to record the transactions for the year ended 31 December, 2018. (10 Marks)
c. Discuss the components of re-measurement gain or loss and state the accounting treatment of a re-measurement gain or loss arising on a defined benefit plan. (5 Marks)

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  • 20 Marks

CR – May 2023 – L3 – Q3 – Employee Benefits (IAS 19)

Discuss accounting treatments for investment properties and pension plans, including calculations and financial statement impacts.

You are the Financial Controller of Gongon Group. On January 2, 2021, you are busy preparing the financial statements for the year ended December 31, 2020. You are under a lot of pressure as you have been asked to present the draft financial statements to the Board of Directors in two days’ time.

The first draft of the financial statements for each of the three companies has been prepared and is now on your table. You have also compiled a list of outstanding issues that you need to consider before presenting the financial statements to the Board.

Outstanding Issues:

Here’s the rewritten version of the First Issue:

First Issue: Investment Properties and Changes in Use

Gongon Group holds three investment properties in its financial statements. These properties are measured at fair value in line with IAS 40 – Investment Properties, while owner-occupied properties are measured at cost less accumulated depreciation and impairment losses. Currently, the properties are presented at their 2019 year-end valuations, with no adjustments for 2020.

Details of the Properties

  1. Property A (Commercial Warehouse):
    • Location: Apapa
    • Use Change: Reassigned as office space for the company during 2020. Tenants vacated on May 1, 2020.
    • Valuations:
      • January 1, 2020: ₦8,000,000
      • May 1, 2020: ₦7,600,000
      • December 31, 2020: ₦7,400,000
    • Depreciation Policy: The company applies a 2% annual depreciation rate, calculated monthly for owner-occupied properties.
  2. Property B:
    • Acquisition Year: 2014
    • Valuations:
      • January 1, 2020: ₦9,000,000
      • December 31, 2020: ₦8,800,000
    • Planned Disposal:
      • Property was vacant from September 2020 and put on the market in October 2020 with an asking price of ₦8,800,000.
      • Estimated disposal costs: ₦600,000.
      • No firm offers had been made by year-end.
  3. Property C:
    • Valuation: Last valued at ₦18,500,000 in December 2018.

Draft Statements of financial position at December 31, 2020

Extract of draft statement of profit or loss and other comprehensive income for the year ended December 31, 2020

Second Issue: Pension Scheme Accounting Treatment

On January 1, 2020, Gongon PLC commenced a defined benefit plan for several head office employees. Under the scheme, Gongon PLC is obligated to provide post-employment benefits to these staff members. The company manages the actuarial and investment risks associated with the pension scheme.

Details of the Pension Scheme

Details ₦’000
Interest Income on Plan Assets 330
Employer’s Contribution to Plan 11,000
Current Service Cost 12,000
Interest on Plan Liability 360
Fair Value of Plan Assets (31/12/2020) 11,600
Present Value of Plan Obligation (31/12/2020) 12,400

Current Accounting Treatment

The Chief Accountant was uncertain about the appropriate accounting standard to apply for the pension scheme. The only adjustment made for 2020 was:

  • Expensing the Employer’s Contribution of ₦11 million in the statement of profit or loss and other comprehensive income.
  • Crediting the corresponding cash account.

The current treatment does not comply with the requirements of IAS 19 – Employee Benefits, which mandates more comprehensive reporting for defined benefit plans.

Required:
(a) Discuss and analyze the required accounting treatment of the first issue, showing relevant calculations and the impact on Gongon PLC’s financial statements as of December 31, 2020. (12 Marks)

(b) Review the accounting treatment of the second issue (pension plan) and make necessary disclosures in accordance with the relevant accounting standard. (8 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q4 – Employee Benefits (IAS 19)

Discuss pension contributions under IAS 19 and the principles and content of CSR reporting.

a. DOVE-TAIL (Nigeria) Limited is into production of Cashew Nuts for global consumption. The entity has 3,000 employees on the payroll who are qualified for an approved defined contribution plan being operated. The company makes an annual pension contribution of N28,000 per employee. In 2016, the company paid a total contribution amounting to N150 million, as well as N119 million and N54 million in 2017 and 2018, respectively.

Required:
In accordance with IAS 19, how should the pension contribution be treated and accounted for in the financial statements of the company?
(10 Marks)

b. There are no international standards on Corporate Social Responsibility (CSR) reporting. However, there is a strong trend toward the provision of more information on a statutory or voluntary basis, and this trend in corporate reporting is likely to continue in the future. Therefore, companies are encouraged to provide disclosures and report on environmental, social, and corporate governance issues. To this effect, voluntary guidelines for the content of and principles to be applied for social and environmental reports are given.

Required:
i. Explain the principles of corporate social responsibility. (5 Marks)
ii. Discuss the suggested contents of social and environmental reports. (5 Marks)

(Total 20 Marks)

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  • 15 Marks

CR – Nov 2017 – L3 – Q5 – Employee Benefits (IAS 19)

Explain and distinguish between defined contribution and defined benefit plans, providing IAS 19 accounting treatments for two pension plans.

Tinubun Plc., a public limited company, operates two pension plans.

Pension Plan 1
The terms of the plan are as follows:

  1. Employees contribute 6% of their salaries to the plan.
  2. Tinubun Plc. contributes, currently, the same amount to the plan for the benefit of the employees.
  3. On retirement, employees are guaranteed a pension based on the number of years’ service with the company and their final salary.
  4. This plan was closed to new entrants from October 31, 2016, but it remains open for future service accrual for employees already in the scheme.

The following details relate to the plan in the year ending October 31, 2017:

Description Amount (₦’m)
Present value of obligation at Nov 1, 2016 200
Present value of obligation at Oct 31, 2017 240
Fair value of plan assets at Nov 1, 2016 190
Fair value of plan assets at Oct 31, 2017 225
Current service cost 20
Pension benefits paid 19
Total contributions paid to the scheme 17

Actuarial gains and losses are recognized in the Statement of Other Comprehensive Income.

Pension Plan 2
Under the terms of this plan, Tinubun Plc. does not guarantee any return on the contributions paid into the fund. The company’s legal and constructive obligation is limited to the amount contributed to the fund. The following details relate to this scheme:

Description Amount (₦’m)
Fair value of plan assets at Oct 31, 2017 21
Contributions paid by company 10
Contributions paid by employees 10

The discount rates for the two plans are as follows:

Date Discount Rate
October 31, 2017 6%
November 1, 2016 5%

Required:
a. Explain the nature and differences between a defined contribution plan and a defined benefit plan with specific reference to the company’s two schemes.
(7 Marks)

b. Show the accounting treatments for the two Tinubun Plc. pension plans for the year ended October 31, 2017 under IAS 19 ‘Employee Benefits’.
(8 Marks)

Total: 15 Marks

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