CFAS

• PAS 19


  Employee Benefits
• Four classifications of employee benefits under PAS 19

  • Short-term employee benefits
  • Post-employment benefits
  • Other long-term employee benefits
  • Termination benefits
• Timing of the recognition of employee benefits

  When an employee has rendered service to an entity during an accounting period, the entity shall recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service
• Defined contribution plan


  A post-employment benefit plan under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods
• Defined benefit plan


  A post-employment benefit plan other than a defined contribution plan
• Accounting procedures for defined benefit plans

  1. Step #1: Determine the deficit or surplus

  2. Step #2: Determine the Net defined benefit liability (asset)

  3. Step #3: Determine the defined benefit cost
• Current service cost


  The increase in the present value of a defined benefit obligation resulting from employee service in the current period
• Past service cost


  The change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment
• Gain or loss on settlement

  The difference between the present value of the defined benefit obligation and the settlement price
• Interest cost on the defined benefit obligation


  The increase during a period in the present value of a defined benefit obligation which arises because the benefits are one period closer to settlement
• Actuarial gains and losses

  Changes in the present value of the defined benefit obligation resulting from experience adjustments and the effects of changes in actuarial assumptions
• Actuarial assumptions


  • Demographic assumptions
  • Financial assumptions
• Discount rate

  The rate used to discount post-employment benefit obligations, determined by reference to market yields at the end of the reporting period on high quality corporate bonds or government bonds
• Other long-term employee benefits

  Employee benefits (other than post-employment benefits and termination benefits) that are due to be settled beyond 12 months after the end of the period in which the employees render the related service
• Termination benefits

  Employee benefits provided in exchange for the termination of an employee's employment as a result of either an entity's decision to terminate an employee's employment before the normal retirement date or an employee's decision to accept an entity's offer of benefits in exchange for the termination of employment
• Termination benefits are initially and subsequently recognized in accordance with the nature of the employee benefit
• Government grants


  Assistance received from the government in the form of transfers of resources in exchange for compliance with certain conditions
• Government grants exclude government assistance whose value cannot be reasonably measured or cannot be distinguished from the entity's normal trading transactions
• Examples of Government Grants

  • Receipt of cash, land, or other non-cash assets from the government subject to compliance with certain conditions
  • Receipt of financial aid in case of loss from a calamity
  • Forgiveness of an existing loan from the government
  • Benefit of a government loan with below-market rate of interest
• What are not government grants

  • Tax benefits
  • Free technical or marketing advice
  • Provision of guarantees
  • Government procurement policy that is responsible for a portion of the entity's sales
  • Public improvements that benefit the entire community
• Recognition of Government Grants

  • There is reasonable assurance that the attached conditions will be complied with
  • The grants will be received
• Classifications of government grants according to attached condition

  • Grants related to assets - grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets
  • Grants related to income - grants other than those related to assets
• Initial measurement of monetary grants

  Measured at the amount of cash received; or the fair value of amount receivable; or carrying amount of loan payable to government for which repayment is forgiven; or discount on loan payable to government at a below-market rate of interest
• Initial measurement of non-monetary grants

  Measured at the fair value of non-monetary asset received, or alternatively, at nominal amount or zero, plus direct costs incurred in preparing the asset for its intended use
• Accounting for Government Grants

  The main concept is the MATCHING CONCEPT - the government grant is recognized as income as the entity recognizes as expense the related cost for which the grant is intended to compensate
• Presentation of Government grants related to assets

  • Gross presentation - the grant is presented as deferred income (liability)
  • Net presentation - the grant is deducted when computing for the carrying amount of the asset
• Presentation of Government grants related to income

  • Gross presentation - the grant is presented separately or under a general heading such as "Other income"
  • Net presentation - the grant is deducted in reporting the related expense
• Repayment of Government Grants

  A government grant that becomes repayable is accounted for as a change in accounting estimate that is treated prospectively under PAS 8
• Property, Plant and Equipment (PPE)

  Tangible assets with physical substance, used in normal operations, and expected to be used for more than a year
• Examples of PPE

  • Land used in business
  • Land held for future plant site
  • Building used in business
  • Equipment used in the production of goods
  • Equipment held for environmental and safety reasons
  • Equipment held for rentals
  • Major spare parts and long-lived stand-by equipment
  • Furniture and fixture
  • Bearer plants
• Recognition criteria for PPE


  • It is probable that future economic benefits associated with the item will flow to the entity
  • The cost of the item can be measured reliably
• Initial measurement of PPE

  PPE is initially measured at its cost
• Elements of PPE cost

  • Purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates
  • Costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management
  • Present value of decommissioning and restoration costs to the extent that they are recognized as obligation
• Examples of directly attributable costs

  • Costs of employee benefits arising directly from the construction or acquisition of PPE
  • Costs of site preparation
  • Initial delivery and handling costs (e.g., freight costs)
  • Installation and assembly costs
  • Testing costs, net of disposal proceeds of samples generated during testing
  • Professional fees
• Cessation of capitalizing costs to PPE


  Recognition of costs in the carrying amount of an item of PPE ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management
• Measurement of cost


  The cost of an item of PPE is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is capitalized in accordance with PAS 23 Borrowing Costs
• Acquisition through exchange


  If the exchange has commercial substance, the asset received from the exchange is measured using the following order of priority: Fair value of asset given up, Fair value of asset received, Carrying amount of asset given up. If the exchange lacks commercial substance, the asset received from the exchange is measured at the carrying amount of the asset given up.
• Subsequent measurement


  An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of PPE
• Cost model


  After recognition, an item of PPE is measured at its cost less any accumulated depreciation and any accumulated impairment losses
• Depreciation


  Depreciation is the systematic allocation of the depreciable amount of an asset over its estimated useful life. When computing for depreciation, each part of an item of PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately.