Summary Notes for major Accounting Subject

Em ployee B enefi ts c. Excess contribution, prepaid expense but to the extent of
 All forms of considerations for exchange for services prepayment lead to reduction for future payment
rendered by employee DISCLOSURE
a. Postemployment benefits  Amount expensed
b. Short-term employee benefits  Contribution plan for management personnel
c. Other long-term employee benefits Accou nting For Defi ned B enefi t Plan
d. Termination benefit  Required actuarial assumptions to measure obligation and
Postemployment Benefit expense
- Other than short-term and termination benefit payable  On discou nted basis
after completion of employment  Expense, not necessarily amount contributed for period.
Include: COMPONENTS:
a. Retirement benefit Ser vice Cost
b. Postemployment life insurance Current
c. Postemployment medical care Past
Postem ploym ent benefi t plan – formal arrangement between Any Gain
entity and employee Net Inter est
- Part of remuneration package Int. exp on DBO
- Informal or established by law (Int. exp on Plan Asset)
Classification: Int. exp asset ceiling
A. Defined contribution plan Rem easu r em ent
- Entity pays FIXED contribution into tr u stee Actuarial (gain)loss
- Entity have no legal or constructive obligation to pay Diff. Income of PA and Return on PA
- Definite contribution, indefinite benefit Diff. Effect of Assset ceiling and change in asset ceiling
- EMPLOYEE bears the investment risk TOTAL DEFINED B ENEFIT COST
Good Plan: Poor Plan: ACTUARIAL VALUATION METHOD
Employee will share in gain Small retirement benefit
Pr ojected Unit Cr edit Method – determine the PV of defined
B. Defined benefit plan
benefit obligation and related current service
- Entity have obligation to provide the AGREED benefits
- Sees each period of service, it giving rise additional
- Entity make contribution + earning to cover future
unit of benefit entitlement
retirement benefit
Annual Salary
- ENTITY bears the investment risk
x FV
Good Plan: Poor Plan:
÷ years of FV use
Contribution holiday Add contribution
Final Salary
MULTIEMPLOYER PLAN
÷ years of service
 Contribution or benefit plan
Annu al Salary
 Asset contributed by different entities use to provide
Current Service Cost
benefits of employee of more than one entity
Annual Salary x PV (separately) descending
UNDER THE LAW
PROJECTED BENEEFIT OBLIGATION
A. Social Security System Current service cost Interest PV
- Contribution plan PV + %PV + Current SC
- % of salary PV x Discount rate
B. Retirement Planning TOTAL EMPLOYEE BENEFIT EXPENSE
- R.A 7641 Current service cost Interest Total
- Benefit plan PV + Interest exp.
- Provide benefit for every year of service PV from PBO
Insu r ed B enefi ts Pr ojected benefi t obligation
 Insurance premium to fund postemployment benefit PV of all benefits attributed by pension benefit before specified date
o Treated as Contribution plan base on future compensation level or future salary increase
o Accounted as Benefit plan if has legal or constructive Based on Current Salary- accu m u lated benefi t obligation
obligation to: Annual Benefit
a. Pay employee benefit directly on due Annual salary x FV x % highest salary x years of service
b. Pay further if insurer not pay all Current Service Cost
Accou nting for Defi ned Contr ibu tion Plan Annual Benefit = annual salary x FV x worked years
 Obligation of entity determined by contribution each period Benefit PV annuity PV of 1 Current SC
 NO actuarial assumptions Annual benefit (Separately)
 Measured on u ndiscou nted basis if settled wholly within 12 Benefit x PV annuity x PV of 1
months after end of period PBO
PROCEDURE Current SC Interest Exp PBO
a. Contribution, expense in period it is payable Initial PBO + Int + current service cost
b. Unpaid Contribution at the end of period, Accrued expense Cu r r ent Ser vice Cost