ACCA 3 DIPAC Employee Benefits - Leases - Events After Reporting Period

1 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.
CONTENTS:
EMPLOYEES BENEFITS IAS 19 , IFRIC 14 , AC504 ..................................................................................................................................... 3 SPECIAL NOTES:...................................................................................................................................................................................................................... 3 CHANGES FROM 2011 : STILL TO CHANGE HERE:......................................................................................................................................................... 3 FUNNY DEFINITIONS: read all all these have something funny in them ......................................................................................................... 3 Different Places where Items are recognised on a straight line basis over no. yrs: ........................................................................................ 4 different meanings of vest .......................................................................................................................................................................................................... 4 SFP Holding accounts used in this chapter: ....................................................................................................................................................................... 4 SCOPE .......................................................................................................................................................................................................................................... 6 SHORT TERM EMPLOYEE BENEFITS ............................................................................................................................................................................. 6 POST EMPLOYMENT BENEFITS : ..................................................................................................................................................................................... 9 1- Post employment benefits : DEFINED CONTRIBUTION PLANS.........................................................................................................................10 2- post employment benefits :DEFINED BENEFIT PLANS.........................................................................................................................................11 DEFINED BENEFIT ASSETS AND THE ASSET CEILING..............................................................................................................................................18 IFRIC 14 AVAILABILITY OF REFUNDS etc. AND MINIMUM FUNDING REQUIREMENTS: .........................................................................19 CURTAILMENTS AND SETTLEMENTS: ..............................................................................................................................................................................19 OTHER CONSIDERATIONS:......................................................................................................................................................................................................20 OTHER LONG TERM EMPLOYEE BENEFITS ............................................................................................................................................................. 21 TERMINATION BENEFITS................................................................................................................................................................................................ 22 METHOD: ................................................................................................................................................................................................................................ 23 SFP: .....................................................................................................................................................................................................................................................23 PRESENTATION & DISCLOSURE SEE EXAMPLE GAAP PG 321.-FINAL DISCLOSURE EXAMPLE. ........................................................................ 23 LEASES IAS 17 ,IFRIC 4, SIC15, SIC27, CIRCULAR 1/2006&12/2006 ............................................................................................. 28 BASICS: ..............................................................................................................................................................................................................................................28 SCOPE: ...............................................................................................................................................................................................................................................28 DEFINITIONS: ................................................................................................................................................................................................................................28 FUNDAMENTAL CONCEPTS: note these tricky terms before continuing they are convoluted. ...........................................................30 CLASSIFICATION OF LEASES: .................................................................................................................................................................................................32
OPERATING LEASE'S IN FINANCIAL RECORDS OF LESSEE: .................................................................................................................................................. 34 OPERATING LEASE'S IN FINANCIAL RECORDS OF LESSOR: .................................................................................................................................................. 35
FINANCE LEASES IN BOOKS OF LESSEE: ................................................................................................................................................................... 37 IAS10 EVENTS AFTER THE REPORTING PERIOD : IAS10 .................................................................................................................... 39 MAJOR POINT IN IAS 10: ................................................................................................................................................................................................... 39 Background .....................................................................................................................................................................................................................................39 METHOD ...........................................................................................................................................................................................................................................39 DATE OF AUTHORISATION OF FIN. STATS. .....................................................................................................................................................................41 DIVIDENDS ......................................................................................................................................................................................................................................41 GOING CONCERN ..........................................................................................................................................................................................................................42 DISCLOSURE: ..................................................................................................................................................................................................................................42
2 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. IAS37 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES IAS37 , IFRIC 5, IFRIC6. ................................. 45 SCOPE ....................................................................................................................................................................................................................................... 45
EMPLOYEES BENEFITS IAS 19 , IFRIC 14 , AC504

IT IS OFTEN VERY UNCERTAIN around the measurement of the cost to employers of employee benefits is. Thus IAS 19 helps to clear it up and allow users of fin stats adequate understanding .
SPECIAL NOTES:
CHANGES FROM 2011 : STILL TO CHANGE HERE: 1.
FUNNY DEFINITIONS: READ ALL ALL THESE HAVE SOMETHING FUNNY IN THEM 1. Funded or Unfunded : funded means there is a separate fund as a separate legal entity, which handles it and to which contributions are paid and benefits are paid from. Unfunded means there is not., the company does it itself. 2. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. 3. Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within twelve months after the end of the period in which the employees render the related service. 4. Post-employment benefits are employee benefits (other than termination benefits) which are payable after the completion of employment. 5. Defined contribution plans are post-employment benefit plans 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. 6. Defined benefit plans are post-employment benefit plans other than defined contribution plans. 7. Multi-employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that: (a) pool the assets contributed by various entities that are not under common control; and (b) use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees concerned. 8. Other long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) that are not due to be settled within twelve months after the end of the period in which the employees render the related service. 9. Vested employee benefits are employee benefits that are not conditional on future employment. 10. The present value of a defined benefit obligation is the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods. 11. The return on plan assets is interest, dividends and other revenue derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less any costs of administering the plan (other than those included in the actuarial assumptions used to measure the defined benefit obligation) and less any tax payable by the plan itself. 12. Plan assets comprise: (a) assets held by a long-term employee benefit fund; AND AND AND AND (b) AND AND AND AND qualifying insurance policies. Assets held by a long-term employee benefit fund are assets (other than non-transferable financial instruments issued by the reporting entity) that: (a) are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and
4 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. (b) are available to be used only to pay or fund employee benefits, are not available to the reporting entitys own creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either: (i) the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or (ii) the assets are returned to the reporting entity to reimburse it for employee benefits already paid. A qualifying insurance policy is an insurance policy* issued by an insurer that is not a related party (as defined in IAS 24 Related Party Disclosures ) of the reporting entity, if the proceeds of the policy: (a) can be used only to pay or fund employee benefits under a defined benefit plan; and (b) are not available to the reporting entitys own creditors (even in bankruptcy) and cannot be paid to the reporting entity , unless either: (i) the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations; or (ii) the proceeds are returned to the reporting entity to reimburse it for employee benefits already paid. 13. REIMBURSEMENT RIGHTS : If another partly MUST reimburse some/all of cost required to settle a Defined Benefit Obligation eg: nonqualifying insurance policy etc. This can be recognized as a SEPARATE ASSET in the companies books ie:like all normal assets ,when it is virtually certain it will be paid.BUT NOT AS PLAN ASSETS, so it may not be offset aginst defined benefit obligation. 14.
DIFFERENT PLACES WHERE ITEMS ARE RECOGNISED ON A STRAIGHT LINE BASIS OVER NO. YRS: 1)"Projected Unit Credit Method of Actuarial Evaluation: the EXCEPTION: there is 1 exception: When in later yrs the formula has a materially higher percentage/s in later years ( like 10 % in yr 1-8 but 20% of salary from after 8 yrs service) THEN : The entity should apportion benefits on a straight line basis from start of benefit entitlement to day percentages will not change anymore. 2)For DEFINED BENEFIT OBLIGATION , in "Past service costs" : Unvested benefits:
DIFFERENT MEANINGS OF VEST 1. Vested benefits: benefits that are NOT conditional on future employment. 2. Unvested benefits: benefits that ARE CONDITIONAL on future employment. 1. ACCUMULATING LEAVE PAY: eg: vacation leave : THERE ARE 2 TYPES a. VESTING LEAVE PAY: (note : different meaning to vested&unvested benefits in Past Service Costs of Defined Benefit Plans ) vesting means leave days accumulated at end of reporting period that entity must pay money to employee for if he ever decides to resign - so this leave can may never be forfeited no matter what happens.(some accrued leave only lasts 1 year , or 2 years then it is forfeited, or if you leave job you dont get paid out for it, but some must get paid out) It should be obvious from this that an obligation arises for leave pay daily as employee renders services and gets extra leave pay each day accumulated . All this leave pay MUST only be raised as a liability at (??when??reporting date though.) b. NON-VESTING LEAVE PAY: this is leave which can be possibly forfeited if employee leaves work- so it may be used as leave or may be forfeited cause it cannot be claimed as actual money ever. IAS 19 says entity must estimate how many days will probably be used/taken as leave in future , and how many will probably be forfeited. SFP HOLDING ACCOUNTS USED IN THIS CHAPTER: 1. ACTUARIAL GAINS /LOSSES ACCOUNT HAS 2 OTHER ACCOUNTS IT COMES FROM : : IAS 19 requires that the Defined benefit Obligation & Plan Assets must be actuarily valued .
5 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. a. Defined benefit account : The difference from the Actuaries valuation and the Book Value then reduces/increases the Defined Benefit Obligation Account. The CONTRA account is NOT in P&L, but rather it is another SFP HOLDING account: the Unrecognised Actuarial Gain/Loss account. It is kept in this account so long and recognized in P&L later. b. Plan Assets : 2. PAST SERVICE COST ACCOUNT : a. Note NB: NB: PUT ON SAME SIDE IN SFP AS IT WOULD BE FOR AN EXPENSE/INCOME. it is an EQUITY account, so a DR in SFP would reduce equity (expense) and a CR would increase equity (income) ( not sure if first is a liability acc or what since the Defined Benefit Ob;igation acc is the liability acc- maybe its an an Equity account?under which heading in SFP does it go ans:seems to be an equity holding account! ) b. (Note NB : POSITIVE past service costs means yes it is a expense , NEGATIVE means it is an income so a negative cost is a income basicly. c. This is where: Past periods of service a worker already has accrued are affected by either: benefits are introduced for the first time, OR where a change is made by the company to the formula for calculating benefits, NOT for current years service but for PRIOR PERIODS OF SERVICE only. d. Method: (important : quickly SEE EXAMPLE pg. 287 GAAP book) First work out the PV of what you work out as the change in benefits , then i. 1st: Funny part : First send to a SFP HOLDING account called Unrecognised Past Service Cost CONTRA Defined Benefit Obligation liability account. MISTAKES YOU MAKE IN EXERCISES: 1. Defined Benefit Obligation incr/decr. : Rem : Note : An incr. in defined benefit obligation acc. from actuarial valuation is actually a LOSS- so it decreases Unrecognised Actuarial Gains on the Dr side of course ( you regarded a incr. as a Gain)In Plan Assets acc it is visa versa of course. 2. Benefits Paid :REM that all benefits paid NEVER go to staff costs they are a creditor payment only of a creditor raised long ago, depending if Plan Assets were used to pay them or if normal Bank was used to pay them . DEFAULT is always plan assets account if nothing mentioned in exam on which is used to pay the benefits. The creditor payment is BETWEEN Plan Assets/or Bank and Defined Benefits Obligation account. This is because the defined benefits is like a pension the staff costs only come into it as the employee builds up his pension fund by work. BUT when they are paid out to him it is NOT a staff cost anymore, but a pension payout from the Defined Benfits Plan . a. Journals: Note : not Staff costs CONTRA Plan Assets at all !!! Just: i. Defined Benefit Obligation Liability: (SFP) 500 1. Plan Assets (SFP) 500 3. JOURNALS : BANK : no need to first do : creditor employee then a separate Bank-pay creditor out Journals for anything with bank just leave out the creditor part and go direct : Staff costs: salaries CONTRA Bank to keep it fast in exam- vertabim unisa answers. 4. JOURNALS FOR : FOR ALL ACCRUALS: eg: accrued leave pay or accrued bonus: never reverse old accruals from end last year that were not all used up in the current year and then do a new one, rather just adjust last years C/B of accruals left over if it was not al lused up for some reason to this years level- so this ADJUSTMENT is your journal entry, NOT the actual figure: a. CALCULATIONS: show for marks : 100% per unisa marksheet i. O/B begin yr Accruals bonuses or leavepay ii. Amount actually used this yearof accrual iii. C/B left over iv. Calc . this yrs needed accrual v. Minus left over from last yr vi. = Journal adjustment to actually go do. 5.
SCOPE
1. Covers all employee benefits EXCEPT those covered by IFRS 2 Share based Payment. 2. Does NOT deal with accounting by employee benefit plans themselves , as a entity - see IAS 26 employee benefit plans 3. Includes: special payments for some wrong done by company, state insurance ,normal benefits, wages , sick leave , PENSION, etc.+ fringe benfits eg housing , car etc. 4. Incl. benefits that may be settled by cash or goods & services to employees or dependants. 5. Incl. directors & management
SHORT TERM EMPLOYEE BENEFITS

1. Definition: Short term employee benefits are those due to be settled within 12 mnths EXCLUDING termination benefits.( termination benefit is ONLY for retrenchment ) 2. There are 4 categories of these: a. Salaries & Wages. b. Short term compensated absences : sick leave and annual leave. c. Profit sharing & bonuses. d. Non-monetary benefits : fringe benfits incl. subsidized goods or services. 3. SHORT TERM EMPLOYEE BENEFITS : RECOGNITION : When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service: (all types special instances get extra explanation IN THEIR headings below to be added to this)
a. b.
as an expense, unless another Standard requires or permits the inclusion of the benefits in the cost of an asset (see, for example, IAS 2 Inventories and IAS 16 Property, Plant and Equipment). AND
AND as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds the undiscounted amount of the benefits, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; and 4. Paragraphs 11, 14 and 17 explain how an entity shall apply this requirement to short-term employee benefits in the form of compensated absences and profit-sharing and bonus plans. SALARIES & WAGES 1. Normally : Cost to Company = a Basic Salary + certain Top ups 2. Gross Salary of employee = total wages he earns before tax &deductions BUT less what company pays in for med aid etc. ( so if company pays 4% of salary to pension and R3000 to med aid , this is a company contribution, and NOT part of his gross salary. If it says R2000 is deducted from his salary to pay med aid, this DOES form part of gross salary, just company contrbutions does not) 3. JOURNALS : (here below the cost to company is R1500 but the Gross Salary is only R1000.) a. Dr Staff Costs R1000 (recognition of basic salary) i. CR creditor : Employee R500 (cash ) ii. CR creditor : Med Aid R100 (deduction from salary to be paid over to med. aid on behalf of employee) iii. CR creditor :SARS R150 (PAYE & SITE) iv. CR creditor : provident fund R 250 (pension) b. DR Staff Costs R500 (recognition of company contributions) i. CR creditor : Med Aid R250 (company contribution not a deduction but paid by company ) ii. CR creditor : provident fund R 250 (company contribution not a deduction but paid by company) SHORT TERM COMPENSATED ABSENCES (sick leave & annual leave)
7 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. 1. Recognition:
a.
IAS 19.11 : An entity shall recognise the expected cost of short-term employee benefits in the form of compensated absences under paragraph 10 as follows:
i. ii.
(a) in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and (b) in the case of non-accumulating compensated absences, when the absences occur.
2. Eg leave pay, military service, vacation, sickness maternity. 3. This is PART of Gross Salary of person 4. At end of fin yr if any unused leave is able to be carried forward to the following year and be actually Either used or / paid out to employee , then a LIABILITY must be raised for unused balances at reporting date. 5. LEAVE PAY: a. ACCUMULATING LEAVE PAY: eg: vacation leave : THERE ARE 2 TYPES i. VESTING LEAVE PAY: (note : different meaning to vested&unvested benefits in Past Service Costs of Defined Benefit Plans ) vesting means leave days accumulated at end of reporting period that entity must pay money to employee for if he ever decides to resign - so this leave can may never be forfeited no matter what happens.(some accrued leave only lasts 1 year , or 2 years then it is forfeited, or if you leave job you dont get paid out for it, but some must get paid out) It should be obvious from this that an obligation arises for leave pay daily as employee renders services and gets extra leave pay each day accumulated . All this leave pay MUST only be raised as a liability at time salaries/wages are done.(??when??reporting date though.) ii. NON-VESTING LEAVE PAY: Adjustment at year end: Accrued leave Pay : this is leave which can be possibly forfeited if employee leaves work- so it may be used as leave or may be forfeited cause it cannot be claimed as actual money ever. IAS 19 says entity must estimate how many days will probably be used/taken as leave in future , and how many will probably be forfeited. ONLY that which will be used/taken as holiday must be raised as a LIABILITY- per IAS19 a. Note: for non-vesting type it also depends on company policy how much of accumulated leave should be raised as a liability. If policy is leave pay only accumulates for 1 following year then is forfeited, and leave is 15 days per year , and you estimate next year employee will take 20 days leave , and he has 14 days accumulated so far still from this year : if policy is either eg : i. Policy=first use current years leave days , then accumulated leave : raise 5 days liability accrued leave.: the rest -9- will be forfeited since it runs out end of next year. ii. Policy=First use accumulated leave then current years : raise 14 days liability .: (reason : none of accumulated leave is expected to be forfeited: it will all be used first next year) iii. At end of fin yr if any unused leave is able to be carried forward to the following year and be actually Either used or / paid out to employee as explained above , then a LIABILITY must be raised for unused balances at reporting date. iv. ONLY done at reporting date year end. This is not done during the year, only if leave is left untaken at year end. v. METHOD: 1. 1st work out how many working days per year eg 250 2. Divide Gross Salary by no. working days = Rands earned per day 3. Multiply rands per day by Leave Days = Liability 4. Cash payout for accumulated leave- Versus -Actually Taking days off work : a. There is a difference between what the Accrued Leave Pay amount will be depending on whether worker decides to take it in cash or as days off. The only difference between the 2 is the company contributions to med aid OR pension etc, that are NOT deducted from workers salary but are a contribution by company itself are added EXTRA . i. Cash payout : if the worker expects to take a cash payout this amount that must be accrued at year end will be less than if worker decides to take days off.- if a cash payout
8 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. is expected it will NOT include the company still paying in a company contribution to med aid/pension etc, because they will pay it as normal staff costs when the worker works those weeks in so it need not do to accrued leave pay BUT: ii. Take the days off : if he estimates he will take the days off, then the accrued leave pay adjustment will be more because these company contributions (that are not part of gross salary, but separate) will need to be paid to med aid specially,on the days he is on vacation, and this must get added to accrued leave pay. 5. Salary Increases : if the next year after the reporting date accrued leave pay adjustment , a salary increase is expected , then the Gross Salary used to do the calculation is the NEW salary, because this is what the employee will be getting for free on those days when he is on holliday next year using these accrued days ,ALSO if there is a accrued leave pay remaining from previous years still, then this old liability from previous yrs. must also be adjusted upwards to next yrs new salary levels. .(if there is a salary increase next year, does an employee who takes it in cash get last years when he did not go on holiday or this years new salary rate?) 6. Journals: a. RECORDING ACCUMULATED LEAVE AT END OF YEAR: Dr Staff Costs R500 ( becomes a expense for this year matching principle) Cr Accrued Leave Pay R500 (like yr end adjustments- now a liability) b. RECORDING USE for holliday OF ACCUMULATED LEAVE THE FOLLOWING YEARS. Dr Accrued Leave Pay R500 (reverse last yr end adjustments- now out of liability) Cr Staff Costs R500 ( this just reduces current years staff cost expense for this year
as it was put in SCI last year already.ie : what was paid to him for paid holiday leave he took this year goes into staff costs for the month he took holiday separately from this, and is treated exactly the same as if it were not even from last year , in the accounting cycle, BUT then this adjustment above brings staff costs DOWN to correct matching principle amount since it was accounted for last yr in staff costsas accrued )
c. RECORDING employee taking a cash payout instead THE NEXT YEAR of ACCUMULATED LEAVE . Dr Accrued Leave Pay R500 (reverse last yr end adjustments- now out of liability) Cr Bank R500 ( this is a liability paid from bank) this one does not go through STAFF
COSTS at all for the year, it is a separate transaction completely where worker redeems a liability owed to him by the firm basicly- like any other debtor-creditor transaction.
d. RECORDING employee taking a cash payout instead THE CURRENT YEAR of CURRENT YEARS LEAVE . Dr Staff Costs R500 (or more specifically Dr Creditor: Employee CONTRA to staff costs, not staff costs itself-just the books way of showing it) Cr Bank R500 ( this is a liability paid from bank) this one does not go through
Accrued Leave Pay at all for the year, it is a separate transaction completely where worker redeems a liability owed to him by the firm basicly- like any other debtor-creditor transaction.
e. [Rem if a employee may take current years leave as cash instead of holiday it is Dr staff costs Cr bank for those days, as well as Dr staff costs Cr bank again for actually also working on those days.] 7. Also rem in a exam question to do the actual entire gross salary for entire year in 1 entry as if it were never recorded , just to show for points : Dr Staff Costs R10000 Cr Bank R10000 b. NON-ACCUMULATING LEAVE PAY: eg: maternity leave : this cannot be saved and used in following year so a liability is NOT raised.
9 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. PROFIT SHARING & BONUS PLANS (due within 12 mnths)
1. Recognition (perIAS 19) An entity shall recognise the expected cost of profit-sharing and bonus payments under paragraph 10 when, and only 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.
2. Measurement : 3. Journal: Dr Staff Costs Cr Accrued Profit Sharing & Bonus Plan
R500 ( becomes a expense for this year matching principle) R500
1. Constructive in sentence (a) above means : Eg: if entity has an informal practice of paying bonuses, and a change in these practices would cause irreparable damage to relationship with employees , or also if bonus must be paid per employment contract.. 2. Reliable estimate means : either amount is determined before fin stats are issued , OR past practice, or a formula etc. 3. An accrual must be raised at fin.yr. end if above conditions exist and this yrs. Bonus gets paid after end of fin. yr. 4. If contract states workers must stay a certain period (Eg :another year) before getting last yrs bonus, you still raise a liability, but according to an estimate of how many % of workers will remain for an extra year and fulfil this condition. BUT if they must remain for 2 years extra before they get it, it is NO LONGER a SHORT TERM BENEFIT .(ie :not to be paid out within next 12 mnths) so it must get treated as per rules of a LONG TERM BENEFIT in same way as a defined benefit plan 5. Funny calc. : if ques say they get 3% of profit AFTER taking this bonus out of profit : it is 3/103 * profit. If it says BEFORE it is 3/100*profit. NON-MONETARY BENEFITS ( incl. fringe benefits eg: car, housing , subsidized goods /services , low interest loans etc) 1. Eg incl. fringe benefits eg: car, housing , subsidized goods /services , low interest loans etc 2. All costs the company actually incurs in providing these benefits are to be accounted as staff costs in the SCI in period incurred (earned by employee) 3. Except for saying it is all incl. in the scope of statement, it does not say much more. There is no requirement to fair value these things unless required by another IASs say.(eg low interest loans are IAS 39). 4. All low interest loans to employees MUST be accounted for using IAS 39.
POST EMPLOYMENT BENEFITS :

1. THESE ARE employee benefits other than terminaton benefits, that are formal or informal arrangements that the entity provides post-employment benefits for one or more employees eg : pension paid after retirement, post employment life insurance or med-aid. 2. IAS 19 applies to all these benefits, irrespective of whether or not a separate entity has been established to receive contributions and pay benefits . 3. There are 2 types: a. DEFINED CONTRIBUTION PLANS i. Entitys legal or constructive obligation limited to : amount it agrees to contribute to fund. ii. Amount employee receives when he retires is based on the amount contributed to fund by employer as well as by himself, plus any investment earnings of fund. iii. Actuarial risks (benefits less than expected) as well as Investment risk (assets invested insufficient to meet expected benefits) falls on employee. b. DEFINED BENEFIT PLANS i. Entitys legal or constructive obligation limited to : to make certain they provide the agreed benefits to the employees, irrespective of amount of contributions made or the investment returns earned by fund ii. Amount employee receives when he retires is based on the amount contributed to fund by employer as
10 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. well as by himself, plus any investment earnings of fund. PLUS if performance of fund is poor then company must also pay in extra to him to make up. iii. Actuarial risks (benefits less than expected) as well as Investment risk (assets invested insufficient to meet expected benefits) falls on company cause it must make certain he gets it.
1- POST EMPLOYMENT BENEFITS : DEFINED CONTRIBUTION PLANS 1. Characteristics of Defined Contribution Plan: a. Entitys legal or constructive obligation limited to : amount it agrees to contribute to fund. b. Amount employee receives when he retires is based on the amount contributed to fund by employer as well as by himself, plus any investment earnings of fund. c. Actuarial risks (benefits less than expected) as well as Investment risk (assets invested insufficient to meet expected benefits) falls on employee. 2. Method: a. Recognition : When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service: i. (a) as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; AND ii. (b) as an expense, unless another Standard requires or permits the inclusion of the contribution in the cost of an asset (see, for example, IAS 2 Inventories and IAS 16 Property, Plant and Equipment). Where contributions to a defined contribution plan do not fall due wholly within twelve months after the end of the period in which the employees render the related service, they shall be discounted using the discount rate specified (Any part that must be contributed by employee himself forms part of Gross Salary Expense of company, NOT a separate company contribution. ) b. Measurement : If entitys contributions fall due within 12 mnths they are not discounted, if ( rarely) they fall due after 12mnts after employee rendered service they must be discounted to PV(RAISING A LIABILITY). (you probably carry on discounting it up to last day at fin. Yr. end if only 6 mnths left , after first 12 mnths is over, per normal accounting practice it is probably again PVd to 6mnths ) The rate you use to discount is the year end market yields on high quality corporate bonds, or in countries where no such deep market exists, then government bonds market yield. the currency & term of bond measured & obligation being PVd are to be the same.i think changed to only 1. 1. Any excess paid above what is due so far by end of period is an Asset : Pre-Paid Expense in books of entity. 2. According to IAS 19.51, the total contribution payable to a defined contribution plan in exchange for services, should be recognised as an expense. No distinction is made between current and additional contributions, or between current and retired employees. 1. Journals : a. Allways try to put the company contributions staff costs and gross salary staff costs in similar but different headings to show for points. (rather i think put them all in ONE GO CONTRA 1 STAFF COSTS AMOUNT : FOR UNISA) b. Dr Gross Salary : Staff Costs R1000 i. CR creditor : Employee R500 (cash ) ii. CR creditor : Med Aid R100 (deduction from salary to be paid over to med. aid on behalf of employee) iii. CR creditor :SARS R150 (tax) iv. CR creditor : provident fund R 250 (pension) c. DR Company Contributions for Benefits: Staff Costs R500 i. CR creditor : Med Aid R250 (company contribution not a deduction but paid by company ) ii. CR creditor : provident fund R 250 (company contribution not a deduction but paid by company)
11 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. d. (rem if question says it is paid in month after incurring, always raise the 1-creditor and 2-bank payments accounts separately in line with this.,AND REM each mnth one must first pay last mnths contributions CONTRA bank, and then only do other journal entries for the mnth. e. (rem if question says same as above but ; do all of fin yrs journals in one go, it means do them for end of yr basicly,so put all salaries in 1 figure etc., and rem to put contributions from last mnth, to be paid in following yr, separately as a separate liability as well. 2- POST EMPLOYMENT BENEFITS :DEFINED BENEFIT PLANS 1. Characteristics of Defined Benefit Plan : a. Entitys legal or constructive obligation limited to : to make certain they provide the agreed benefits to the employees, irrespective of amount of contributions made or the investment returns earned by fund b. Amount employee receives when he retires is based on the amount contributed to fund by employer as well as by himself, plus any investment earnings of fund. PLUS if performance of fund is poor then company must also pay in extra to him to make up. c. Actuarial risks (benefits less than expected) as well as Investment risk (assets invested insufficient to meet expected benefits) falls on company cause it must make certain he gets it. 2. Funded or Unfunded : funded means there is a separate fund as a separate legal entity, which handles it and to which contributions are paid and benefits are paid from. Unfunded means there is not. 3. Employers Staff Costs to be Expensed & Underwriting of Benefits: as employer is in substance underwriting the actuarial & investment risks of the plan,the benefit the employee obtains is NOT just the contributions by employer BUT it is the actual benefit eventually payable to employee that needs to be expensed in accounts of employer . 4. RECOGNITION: 57 changed see the new IAS19 .57 Accounting by an entity for defined benefit plans involves the following steps:
using actuarial techniques to make a reliable estimate of the amount of benefit that employees have earned in return for their service in the current and prior periods. This requires an entity to determine how much benefit is attributable to the current and prior periods (see paragraphs 6771) and to make estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs) that will influence the cost of the benefit (see paragraphs 7291); b. discounting that benefit using the Projected Unit Credit Method in order to determine the present value of the defined benefit obligation and the current service cost (see paragraphs 64 66); c. determining the fair value of any plan assets (see paragraphs 102104); d. determining the total amount of actuarial gains and losses and the amount of those actuarial gains and losses to be recognised (see paragraphs 9295); e. where a plan has been introduced or changed, determining the resulting past service cost (see paragraphs 96101); and f. where a plan has been curtailed or settled, determining the resulting gain or loss (see paragraphs 109 115). Where an entity has more than one defined benefit plan, the entity applies these procedures for each material plan separately. IAS 51 In some cases, estimates, averages and computational short cuts may provide a reliable approximation of the detailed computations illustrated in this Standard. a.
1. MEASUREMENT: a. THE ACTUARIAL EVALUATION METHOD 1. This is the method that is prescribed for doing the actuarial calculations involved for future costs. 2. Projected Unit Credit Method :(check example in book very important) ONLY 1 method : the Projected Unit Credit Method is allowed for working these out. a. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. b. METHOD: i. 1st Year : You work out the benefit that this years work will cause in the final year when it becomes due per plan formula. Then you discount it to PV .- that is this years ANSWER. ii. Next years: you must either: 1. Add +1 year worth of interest back to last years figure to bring to this yrs date PLUS then add what expense this years work will cause in the end year when it becomes due - discounted back to today. 2. OR just say Y1+Y2 in Final Yr discounted back to today.
12 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. iii. EXCEPTION: there is 1 exception: When in later yrs the formula has a materially higher percentage/s in later years ( like 10 % in yr 1-8 but 20% of salary from after 8 yrs service) THEN : The entity should apportion benefits on a straight line basis from 1. FROM : The date when service by employee first leads to benefits under the plan (whether or not the benefits are conditional upon further service.) 2. TO : the date when no further material increases will take place in the % rate used, OTHER than plain salary increases (they are not counted).The way they do this is just to divide all employees up into those expexted to leave in 20 yrs/ 10 yrs etc into all the categories where the % of benefits would be different. Then you say eg those who stay +20 yrs get 50 % medical fees paid- so 50/20=2.5% per year that is a straight line basis now. Then for other categories eg expected to leave before 10Yrs @10% medical costs to be paid : we say 10%/ 10yrs = 1% per year on a straight line basis.. 3. This means: EXAMPLE from IAS19 :
a. 4. A post-employment medical plan reimburses 10% of an employees post -employment medical costs if the employee leaves after more than ten and less than twenty years of service and 50% of those costs if the employee leaves after twenty or more years of service. Service in later years will lead to a materially higher level of benefit than in earlier years. Therefore, for employees expected to leave after twenty or more years, the entity attributes benefit on a straight-line basis under paragraph 68. Service beyond twenty years will lead to no material amount of further benefits. Therefore, the benefit attributed to each of the first twenty years is 2.5% of the present value of the expected medical costs (50% divided by twenty). For employees expected to leave between ten and twenty years, the benefit attributed to each of the first ten years is 1% of the present value of the expected medical costs.For these employees, no benefit is attributed to service between the end of the tenth year and the estimated date of leaving. For employees expected to leave within ten years, no benefit is attributed.
THE NET LIABILITY 1. The net liability is where a defined benefit plan is FUNDED and the entity sets aside assets into the fund each yr (called plan assets) to help be able to pay the obligations later- then the PV of the Benefit Obliation Liability LESS the Plan Assets = this is the Net Liability. THE DEFINED BENEFIT OBLIGATION: 6. The Defined Benefit Obligation (the liability in the books) is built up through a process, in the following steps: c. CURRENT SERVICE COST: this is the Current Years value : of the amount that this years service will cause in the final year, per plan formula, when it becomes due. Then you discount it to PV .- that is this years ANSWER that must be added to Staff Costs as this years . 1. Journals: a. DR Staff Costs: current service cost (expense) 500 CR Defined benefit Obligation (liability) 500 e. PAST SERVICE COST: i. This is where: Past periods of service a worker already has accrued are affected by either: benefits are introduced for the first time, OR where a change is made by the company to the formula for calculating benefits, NOT for current years service but for PRIOR PERIODS OF SERVICE only.OR even where all/some benfits are stopped and a settlement payout is made to employees to make up for the loss. ii. Note: straight line method: if you recognize something on a straight line method, you only of course recognize the first installment at THE END of the first year, not begin of 1st yr. So a yr must pass 31 Decbefore you recognise the 1st yr of an Avg vesting period of say 3 yrs at 1 Jan. iii. Past Service Costs are RECOGNISED AT THE EARLIER of the following dates: 1. When plan amendment occours 2. OR when entity recognises related restructuring or curtailment costs. iv. Method: ( 1. This is now to be recognized whether vested or unvested in year 1 immediately .I ti recognised in normal staff costs in P&L. whether vested or unvested, immediately.( no more holding accounts or Unrecognised Past Service Costaccounts just simple as below)
2. CHANGED : 1st: Funny part : First send to a SFP HOLDING account called CONTRA Defined Benefit Obligation liability account.NB: PUT ON SAME SIDE IN SFP AS IT WOULD BE FOR AN EXPENSE/INCOME. it is an EQUITY account, so a DR in SFP would reduce equity (expense) and a CR would increase equity (income) ( not sure if first is a liability acc or what since the Defined Benefit Ob;igation acc is the liability acc- maybe its an an Equity account?under which heading in SFP does it go ans:seems to be an equity holding account! ) a. (note: POSITIVE past service costs means yes it is a expense , NEGATIVE means it is an income so a negative cost is a income basicly IT JUST REDUCES your staff costs for year. b. Journals: i. Positive past Servixce Cost initial recording: ii. DR Staff Costs : Past Service Costs: (SCI) 500 CR Defined benefit Obligation (SFP) (liability) 500 iii. Negative Past Service Cost initial recording: iv. CR Defined benefit Obligation (SFP) (liability) DR Staff Costs : Past Service Costs: (SCI) f.
500 500
SETTLEMENT GAINS OR LOSSES: i. A settlement is where a payout occours that is NOT part of the plan, in order to curtail or stop the benefits plan completely the settlement is a payment to employees to make up for loss of plan.ONLY if the payment is made and is NOT UNDER THE TERMS OF THE PLAN ii. It is not part of Past Costs calculation at all but basicly just falls in that category . iii. You simply reduce the Defined benefit Obligation by the PAYOUT made,CONTRA bank OR plan assets, whichever is used to pay it, and if the payout is worth more or less than the Defined Benefit Obligation it is getting rid of/settling then there is a gain or loss on settlement and that is the ONLY thing that would affect STAFF COSTS that year to do with the settlement otherwise staff costs would not be affected at all. iv. JOURNALS: 1. Defined Benefit Obligation SFP a. BANK (if any part of bank was used to pay) b. DEFINED BENEFIT PLAN ASSETS : (if any part of this was used to pay) c. GAIN or LOSS on SETTLEMENT (if there is a difference between payout and defined benefit
obligation portion it gets rid of- could be DR if it was a loss.)
g. INTEREST COST: i. This is all the interest from prior periods Benefits that were put in the Defined benefit Obligation liability account at last years PV. So you must bring them to this yrs PV by adding interest. ii. Method: simply add 1 Yrs interest to last years END OF LAST YEAR PV , as interest this year.(LEARN THIS : DO NOT USE THIS YEARS FIGURES AT ALL- ONLY END OF LAST YEARS PV IS USED-ONLY, and BEGIN OF THIS YRS DISCOUNT RATE!- not end of yrs discount) 3. ALSO: Movements in the year : if there were any additions or subtractions from the DEFINED BEN.OBLIGATION . ACCOUNT during the year, one must use this same interest rate at begin of year , and work out what the additional interest gain/loss from these are for eg 6 mnths if it was paid/received in the middle of the year.So divide interest rate by 12 to * 6 to get rate for 6 mnths, and use this to calc the extra interest that you would get. ( it could even be less interest if the def.ben.oblig. decreased .This gets added same as other interest in journals below.(per textbook vertabim): (so how is one supposed to adjust for changes in last years defined benefit obligation during the year : eg new past Service Costs + people leaving the firm&scheme?- like ias 19 says adjust for changesand in GAAP it says taking into account changes in the year -like it says above. i. 1. Use DISCOUNT RATE at START of Current year X Defined Benefit Obligation AT END OF LAST YEAR taking into account material changes in the obligation. 2. Journals: a. Interest recording: b. DR Staff Cost - Interest Cost (P&L) expense 500 CR Defined Benefit Obligation (SFP) (liability)
b. BENEFITS PAID: when benefits are paid the Defined Benefit Obligation (SFP) (liability) REDUCES of course. These benefits can be paid from either assets of employer ie Bank (unfunded case) or from plan assets( funded case) 1. Note: this NEVER becomes a staff cost DONT MAKE IT A STAFF COST EVER! because it is merely paying a pension to a creditor , which creditor casued a staff cost yrs ago when he qualified for the pension he is receiving that day. 2. Journals: a. Benefits Paid recording: b. DR Defined Benefit Obligation (SFP) (liability CR Plan Assets (SFP) (assets) (or BANK if it is a unfunded scheme) c. THE ACTUARIAL VALUATION OF THE OBLIGATION: i. Conclusion: Once the above are processed, the following will be recorded in the Defined Benefit Obligation general ledger account.: 1. O/B : xxx 2. Current Service Cost : xxx 3. Past Service Cost: xxx 4. Interest Cost: xxx 5. Benefits Paid: (xxx) 6. Answer : Obligation: = yyy ii. Actuarial Gains /Losses : IAS 19 requires that the Defined benefit Obligation must be Actuarially valued . 1. The difference from the Actuaries valuation and the Book Value then reduces/increases the Defined Benefit Obligation Account to bring it to the actuaries level. The CONTRA account is NOT in P&L, but rather it is OCI : Acturial Gain on Remeeasurment OR OCI :Actuarial Loss on Remeasurement Rem : Note : An incr. in defined benefit obligation acc. from actuarial valuation is actually a LOSS- so it decreases OCI : rem OCI decreases on the DR side and increases on the CR side since it is EQUITY. 2. OCI : Acturial Gain on Remeasurement OR OCI :Actuarial Loss on Remeasurement are 2 accounts that go in OCI. They are of a type that can NEVER be transferred to P&L . 3. Journals: a. ACTUARIAL VALUATION HIGHER b. DR OCI : Acturial Loss on Remeasurement xxx CR Defined Benefot Obligation (SFP) xxx c. ACTUARIAL VALUATION LOWER d. DR Defined Benefit Obligation (SFP) xxx (decreases it) i. CR OCI : Acturial Gain on Remeasurement 4. Actuarial valuation: details: a. IAS 19 says:( see IAS 19 for details : preferably by actuary, but may be done by accountant himself. b. Regularly done so fin stats reflect correct figures c. To be unbiased( nor imprudent nor over conservative) & mutually compatable ( must reflect current inflation/slaray increases/discount rates) d. Actuarial Assumptions: to comprise demographics eg: mortality , employee turnover etc, financial assumptions (discount rate, future salary increases, etc) 5. Discount rate: to use rate of high quality corporate bonds in a deep market, else if no deep market then Gov Bonds.- at the same timeframe as maturity of obligation ie 10yr bonds or 5 yr bonds rate etc. This is changing to ONLY former , not latter anymore. PLAN ASSETS: ( learn method below by heart !) DEFINITION: 1. These are: assets ( eg: bonds) that are put aside each year by entity to pay benefits with. They must fall in EXACT
15 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. IAS 19 definition of Plan Assets or else they do not qualify and must be put uner other headings, NOT as plan assets eg: IAS 39 for bonds etc. This is very important! 2. Net Liability : Plan assets are NEVER shown as such in Fin Stats, they are always Netted against the Defined Benefit Liability account to give = what is called the Net Liability 3. Definition of Plan Assets:
Plan assets comprise: (a) assets held by a long-term employee benefit fund; AND AND AND AND (b) AND AND AND AND qualifying insurance policies. Assets held by a long-term employee benefit fund are assets (other than non-transferable financial instruments issued by the reporting entity) that: (a) are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and (b) are available to be used only to pay or fund employee benefits, are not available to the reporting entitys o wn creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either: (i) the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or (ii) the assets are returned to the reporting entity to reimburse it for employee benefits already paid. A qualifying insurance policy is an insurance policy* issued by an insurer that is not a related party (as defined in IAS 24 Related Party Disclosures ) of the reporting entity, if the proceeds of the policy: (a) can be used only to pay or fund employee benefits under a defined benefit plan; and (b) are not available to the reporting entitys own creditors (even in bankruptcy) and cannot be paid to the re porting entity, unless either: (i) the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations; or (ii) the proceeds are returned to the reporting entity to reimburse it for employee benefits already paid.
BENEFITS PAID 1. REM that all benefits paid NEVER go to staff costs they are a creditor payment only of a creditor raised long ago, depending if Plan Assets were used to pay them or if normal Bank was used to pay them . DEFAULT is always plan assets account if nothing mentioned in exam on which is used to pay the benefits. The creditor payment is BETWEEN Plan Assets/or Bank and Defined Benefits Obligation account. This is because the defined benefits is like a pension the staff costs only come into it as the employee builds up his pension fund by work. BUT when they are paid out to him it is NOT a staff cost anymore, but a pension payout from the Defined Benfits Plan . 2. Journals: Note : not Staff costs CONTRA Plan Assets at all !!! Just: a. Defined Benefit Obligation Liability: (SFP) 500 i. Plan Assets (SFP) 500 CONTRIBUTIONS TO THE PLAN: See Example 12.15 in GAAP now! Pg: 290) 1. Employer contributions to the Plan Assets are NOT expensed, BUT treated as an increase in PLAN ASSETS so just an asset transfer from one account to another. Only actually paying out or incurring vested benefits is an expense : staff costs. 2. Journals: a. Employer contributions DR Plan Assets (SFP) xxx CR Bank (SFP) xxx 3. Employee contributions: a. LEARN THIS ONE OFF BY HEART: it is done in a funny way that must be memorized: b. Funny thing 1: ( MUST quickly see example 12.15 GAAP bk pg 290) If employee pays % of his salary toward Plan Assets ,then what is deducted from his GROSS SALARY is not shown as part of Staff Costs that month.- It is transferred directly to Plan Assets from bank account , same as for employer contributions above exactly the same. WHY: because all the Current service cost, Interest cost, Past service cost etc calculations from Defined Benefit Obligation account are the ones that increase his Staff Cost Expense to Gross Salary Level-(REM DR Staff Cost :(Current Service Cost CONTRA CR Defi.Ben.Obligation ) : and his personal contribution to the Asset Fund mnthly must be worked into the formula used for these Defined Benefit Obligation account expenses ( Current Service Cost, Interest etc) before it ever even starts to get deducted from his salary- so this salary deduction is not shown in the books at all .- only in an excel work
16 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. sheet.- See Journals Below. i. So you DO NOT say Dr Staff costs CONTRA Cr Plan Assets creditor :Employee Salary Deductions as seems logical you just leave it out completely from staff costs , and ONLY book: Dr Plan Assets Cr Bank thats it the other workings above must balance this out because Plan Assets&DefinBenOblig. Get netted off against each other anyway and DefinBenOblig has become like a creditor like employee/or SARS /or Med Aid etc which are contra staff costs c. Funny Thing 2: If all above pension fund deductions are only processed in following mnth each mnth: i. IAS 19 says fair value of plan assets should exclude unpaid contributions due by the entity to the Plan Assets ii. Therefore : you will NEVER raise a liability for entity saying it owes Plan Assets fund R500 from deducted employee contributions AND employer contributions. You simply forget it and the next month remember to do the transfer Dr Plan Assets CONTRA Cr Bank see journals below. iii. This is because : the plan assets are NETTED off against the Defined Benefit Liability anyway in the fin stats so any increase in Plan Assets REDUCES the LIABILITY of the Defined Benefit Liability account so the company owes less, But is you do not credit the Plan Assets as being owed by ccompany, then the Defined Benefit Liability account stays higher, so IT shows the liability outstanding ALREADY no need to show it twice in different places basicly just usage of accountants over the yrs it seems. 4. Journals: See Example 12.15 book GAAP now! Pg 290 a. If Gross Salary is 120000, but 9600 is deducted each mnth to pay to Plan Assets = 110400, BUT it is only paid in following month in this entity,for some reason,, so remains owed by company to fund for a mnth each time. ( if the company also contributes separately to Plan Assets, its contribution can just be included in the plan assets/bank journal entry below AND it also follows IAS 19 funny rule 2 above) b. Employee contributions - note : no extra creditor deductions are raised CONTRA staff costs for the deduction from employees salary: it remains invisible , and only shows in next mnths bank/plan assets transfer. DR Plan Assets (SFP) CR Bank (SFP) xxx ( this is last mnths contribution being paid only now !) xxx
INTEREST INCOME EXPECTED RETURN ON PLAN ASSETS: 1. Plan Assets: Return on Capital Invested = interest,dividends,other revenue, + realised & unrealized gains or losses on the plan assets, LESS admin costs & taxes on plan but costs counted by actuary are not counted again here, they are incl. in the valuation of Defined Benefit Obligation itself. 2. IAS 19 REQUIRES that the market expectations at beginning of period be used to recognize any Return on the Plan Assets , NOT end of year figures BUT begin of yr figures for EVERYTHING ! you use the following to calc. CURRENT YEARS expected return : Simple: a. Begin Yr Expected Discount Rate of any possible Returns. b. Begin Yr PLAN ASSETS ACCOUNT balance at fair value .( 1 Jan) 3. ALSO: Movements in the year : if there were any contributions during the year, or plan benefits paid out one must use this same interest rate at begin of year , and work out what the additional interest gain from these are for eg 6 mnths if it was piad/received in the middle of the year.So divide interest rate by 12 to * 6 to get rate for 6 mnths, and use this to calc the extra interest that you would get.This gets added same as other interest in journals below.(per textbook vertabim) 4. Any wrong estimate gets corrected at end of year when Fair Value of the Plan Assets gets done, of course. 5. 6. So any EXPECTED Returns REDUCE the Staff Costs for the year ( is this strictly so so does this get Cr to normal staff costs for the year MAIN ACCOUNT, where all the other staff costs accumulate . & can one actually have all the sub costs in a main chief account and the sub costs in sub accounts beneath it Staff Costs : Returns on investment , and Staff costs: Current Service Costs, and Pension Contributions etc for all the journals ? can you also write them all like that in exam?) 7. Journals: (or visa versa for an expected loss below)
17 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. a. Dr Plan Assets (SFP) i. CR Staff Costs : Interest : Expected Return on Plan Assets (staff costs) (P&L) [reduces staff costs!] 8. In the PROFIT BEFORE TAX NOTE : Blocked off under the Employee Staff Costs line item, one can show how the NET EXPENSE , which comes first in blocked off area , comes from current service costs, past service costs etc OR just the net expense/income alone asablocked off item) 9. FAIR VALUE done at yr end : VALUATION OF PLAN ASSETS 1. Once all above journals completed, the Plan Assets Account will look like this: a. O/B xxx b. Contributions: xxx c. Expected Return on Plan assets: xxx d. Benefits paid: (xxx) e. TOTAL Recognised Assets: ` XXX 2. Now all thats left is Plan Assets must be Fairly Valued & changed as required by IAS 19. a. Fair value : excludes any amount owed to fund by entity and excludes any non-transferrable financial instruments issued by the entity. b. OCI: RETURN ON PLAN ASSETS :RE-MEASUREMENT ACCOUNT.: any loss/increase in the plan assets goes direct to the OCI, same as for def.ben.oblig. .Here it is called RETURN ON PLAN ASSETS :REMEASUREMENT account. It may never be transferred to P&L. c. Journal: i. For actuarial loss: ii. Dr RETURN ON PLAN ASSETS :RE-MEASUREMENT (OCI) a. Cr Plan Assets (SFP) iii. For actuarial gain: Dr Plan Assets (SFP) Cr RETURN ON PLAN ASSETS :RE-MEASUREMENT(OCI)
REIMBURSEMENT RIGHTS 1. If another partly MUST reimburse some/all of cost required to settle a Defined Benefit Obligation eg: nonqualifying insurance policy etc. this 2. This MUST be recognized as a SEPARATE ASSET ie some normal asset,when it is virtually certain it will be paid.BUT NOT AS PLAN ASSETS, so it may not be offset aginst defined benefit obligation. so it does NOT go in Plan Assets Account- it gets its own account .BUT: Funny Thing: The asset MUST get treated the same as plan assets in all other respects: so it must : i. Be measured at fair value & record actuarial gains/losses same way ii. Must record expected returns on the asset in its same own account .
A qualifying insurance policy is an insurance policy* issued by an insurer that is not a related party (as defined in IAS 24 Related Party Disclosures ) of the reporting entity, if the proceeds of the policy: (a) can be used only to pay or fund employee benefits under a defined benefit plan; and (b) are not available to the reporting entitys own creditors (even in bankruptcy) and cannot be paid to the reporting entity , unless either: (i) the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations; or (ii) the proceeds are returned to the reporting entity to reimburse it for employee benefits already paid.
FAIR VALUE OF INSURANCE POLICIES 1. Any insurance policy which covers any benefits to be paid, is Fair Valued at the exact PV of those future benefits to be paid less of course any part not covered fully.
18 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. DETERMINING AMOUNT OF NET LIABILITY IN THE SFP 1. The Defined Benefit liability presented in the SFP is DIFFERENT to the General Ledger Defined Benefit Liability account.This is because Per IAS 19 it it is the Net Amount of the following amounts: 2. Defined liability Obligation & Plan Assets : these 2 are just offset against each other. a. Adjusted for any effect of the asset ceiling. 3. Reconcilliation :Note: a reconcilliation ofthe above must be done in the Notes in Defined Contribution Plan Note. REMEMEBER the o/bmust be last years NET defined liability not just plan assets or obligations BUT THE FULL NETTED OFF AMOUNT. a. Take o/b, add net expense( all yrs staff costs & income etc ) and minusing contributionsion / Actuarial gains/losses etc etc , see IAS 19 for full list : includes foreign exchange differences and various other things. 4. OFFSETTING 2 DIFFERENT SEPARATE PLANS liabilities & assets IN FIN STATS: i. Firm may only offset 2 SEPARATE plans liabilities VS assets if they : (otherwise separate amounts must be shown in fn stats for each-) 1. Legally enforceable right to use surplus in one plan to settle obligations in other AND Intends to settle on a net basis or reaslise surplus in one plan and settle obligation in other simultaneously
DEFINED BENEFIT ASSETS AND THE ASSET CEILING 1. REMEASUREMENTS of the THE NET DEFINED BENEFIT OBLIGATION consists of all in OCI i. Actuarial Gain s& Losses (in defined benefit OBLIGATION that goes to OCI) ii. Return on Plan Assets (the Remeasurement /Valuation change in Plan assets that goes to OCI ) iii. Any change in the effect of the asset ceiling *(excl. interest on plan assets of course) b. These all may NEVER be reclassified to P&L, BUT may be transferred within equity from one component to another. 2. DEFINED BENEFIT ASSET CEILING: a. It can happen that the plan assets are more than the defined benefit obligation liabilities. When this happens the NET DEFINED BENEFIT OBLIGATION can have a positive balance as an asset. b. IAS19.24 limits the resulting asset to the lower of : i. The surplus in the defined benefit plan ii. The asset ceiling , determined using the disount rate applicable to the obligation. c. The Asset Ceiling is the PV of any future economic benefits available from the plan to THE ENTITY ITSELF in the form of: i. Refunds from plan (Note : IFRIC 14 : ONLY if the law of that country allows refunds , or how much refunds it allows etc) ii. OR reductions in CONTRIBUTIONS Note : IFRIC 14 : ONLY if the law of that country allows refunds , or how much refunds it allows etc) iii. Note : IFRIC 14 : ONLY if the law of that country allows refunds , or how much refunds it allows OR reductions in contributions etc ) d. To Calc. The ASSET CEILING : you simply get the PV of the (POSITIVE) DIFFERENCE BETWEEN DEFINED BENEFIT OBLIGATION account and the PLAN ASSETS account. i. So if thePV ie: Asset Ceiling is lower than the surplus in the NET DEFINED BENEFIT OBLIGATION , then you have to lower the NET DEFINED BENEFIT OBLIGATION to the level of the asset ceiling, so the amount shown in the SFP will be the lowered amount; ii. This is done by using the OCI it does not go throgh P&L at all. e. REm: There are 3 different OCI accounts for Emloyees Benefits : i. The Change in asset ceiling (Remeasurement ) allowance account (OCI) Asset ceiling ii. The Return on Plan Assets Remeasuremnt Account (OCI) Plan Assets iii. The Actuarial gain/loss on remeasurement account (OCI) : Defined Benefit Obligation f. If last year the Asset ceiling Allowance account was 200 due to a limitation on the asset ceiling, this year that old limitation must be reversed so it does not CONTRA reduce the Plan Assets so also the Net def.Liab. in the fin stats SFP at year end when it is all netted off as contra accounts(Rem there are 3 contra accounts here : Plan Assets, Def.liab.oblig and this Asset Ceiling Allowance account all get netted off to form 1 figure in SFP.
19 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. g. JOURNAL ENTRY : i. DR Change in asset ceiling (Remeasurement ) account (OCI) 1. CR Asset ceiling Allowance Account (SFP) this one is offset against the Plan Asssets account AND the Defined Benefit Obligation account when one works out the SFP NET DEFINED BENEFIT OBLIGATION line item that must go to N-C ASSETS in the SFP.
IFRIC 14 AVAILABILITY OF REFUNDS ETC. AND MINIMUM FUNDING REQUIREMENTS: 1. AVAILABILITY OF REFUNDS: CERTAIN COUNTRIES LAWS, or funds rules, restrict refunds from funds to employer. a. Ifric 14 : says avialbility means: can be at any point in life of fund not just at reporting date, matters not what purpose it will be used for, can be a combination of refund or contribution lessening, amount is not affected by possible future changes to the amount , plus depends on rules and laws. b. Ifric 14 rules: u if full surplus is to be refunded, not an exact amount , at future date PV need not be worked out since it will grow at same rate anyway, PV need only be worked out if it is an exact amount at future date. c. 2. AVAILABILITY OF CONTRIBUTION REDUCTIONS: (by firm, not employees!) a. IN rsa: (AC 504 see)law states refunds not permitted, so only reduction in contributions is allowed for ANY difference at all, whether in fund employer surplus account or in fund employee surplus account or fund itself. i. Pension Funds Act 1956 law rules over these funds. Must be actuarially tested 3 yrs, above two accounts must be calc. every so often etc. See Act futher details. b. IFRIC 14: must assume a stable workforce unless there is a planned reduction , and assume no change to plan benefits until plan is actually amended. 3. MINIMUM FUNDING FEQUIREMENTS: IF THE laws of country have a min funding requirement, there could be liability at reporting date for any shortfall in plan assets. a. REFUNDS: simple work it out b. CONTRIBUTION REDUCTIONS: c. HIDDEN LIABILITY: only the part that is not refundable to entity is to be written up as a liability for obvious reasons. d. Special Formula for working it out: See IAS 19. ?? : : i. Journals: 1. STAFF COST: Minimum Funding Requirement (P&L) xxx Minimum Funding LIABILITY (SFP) xxx CURTAILMENTS AND SETTLEMENTS: 1. MAIN ISSUE: IMMEDIATELY reduce all affected accounts DIRECTLY against Staff Costs:Curtailment & Settlements.DO NOT first send to any EQUITY HOLDING ACCOUNT ie: Unrecognised Actuarial or Unrecognised Past Service costs. Instead these must reduce directly against Staff costs if they happen to be affected too. 2. CURTAILMENTS: this is where eg a plant is closed etc or benefits are reduced : so number of employees drops-curtailed- or amount of benefits drops one of the 2. a. Distinguishing between curtailments and negative Past Service cost: i. The critical factor that disctinguishes between the 2 is whether the change is related to FUTURE SERVICE COSTS or not. If it is related to future service costs it is a CURTAILMENT, if not it is a past service cost. ii. So- if a change in benefits relating to future salary increases is linked to/affects past service costs then it is a CURTAILMENT. 3. SETTLEMENTS: where firm pays out a settlement to employees in exchange for reducing the future benefits payable. 4. Method: a. IMMEDIATELY reduce all affected accounts DIRECTLY against Staff Costs:Curtailment & Settlements. Instead these must reduce directly against Staff costs b. Should be accounted for as soon as it happens. c. Gain/loss can consists of ONLY of the following 4 SFP Accounts never P&L accounts at all: just these 4: i. Plan Assets Account : Resulting Plan assets Fair Value change if paid out from here
20 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. ii. Defined Benefit Obligation Account : Resulting PV of Defined Benefit Obligation change iii. Past Service Cost Any Past Service Cost change from a curtailment,not a settlement. 5. DISTINGUISHING BETWEEN CURTAILMENTS AND NEGATIVE PAST SERVICE COST: a. The critical factor that disctinguishes between the 2 is whether the change is related to FUTURE SERVICE COSTS or not. If it is related to future service costs it is a CURTAILMENT, if not it is a past service cost. b. So- if a change in benefits relating to future salary increases is linked to/affects past service costs then it is a CURTAILMENT. 6. 7. Journals: a. Defined benefit Obligation (SFP) xxx b. Not sure if OCI ActuarialGains account must also be changed?ask! i. Staff Costs: Gain on Curtailment P&L (income) R xxx OTHER CONSIDERATIONS: 1. BUSINESS COMBINATIONS: measured at date as difference between PV of Def. Ben liability & Fair Value Assets. All Unrecognised past service costs & Deferred (Unrecognised) Actuarial gains /losses are recognized immediately. This will all affect Goodwill. a. An (NET) asset is recognised only to extent it is available as refunds/contribution reductions. MULTI EMPLOYER PLANS Can be Defined Contribution OR Benefit plans OTHER than state plans, that pool the benefits from entities that are NOT under common control c. They should provide benefits to employees without distinguishing from which firm they come. d. ACCOUNTNG: i. Defined Contribution Plans: as per usual ii. Defined Benefit Plans: the entity records its Pro-Rata share of all the plan accounts, and discloses them the same as usual all pro-rata UNLESS : 1. Treated like a Defined Contribution Plan : If enough info is not available to do the above, then the plan is treated like a Defined Contribution Plan, EXCEPT that special disclosures must be made: a. Reasons Acceptable For not get enough info: 1-entity not allowed access to the info 2- or actuarial assumptions use employees data from other firms as well that disallows proper pro-rata ing beteen firms of all accounts. 2. Disclosures: a. MUST disclose that it is a special benefit plan b. AND : reasons why sufficient info. is not available c. AND : Expected contributions for next fin year d. AND : level of participation by entity in plan compared to other entities in it. e. Surplus/ Deficit: if there is one for the whole plan , i. DISCLOSE : firm must disclose : IAS 19.148 (in disclosures at end) 1. Any info on it 2. Basis used to determine it 3. Implications for entity due to it. 4. Plus other things see IAS19 ii. IF there is an agreement on how to apportion it between firms, THEN any surplus/deficit must be accounted for in the books , as well as the contributions that are accounted for anyway of course since it is being treated as a Defined Contribution Plan. 2. DEFINED BENEFIT THAT SHARE RISKS BETWEEN VARIOUS ENTITIES UNDER COMMON CONTROL.: a. IAS 19 gives Specific set of rules to use how to treat these plans: b. If there is a contract or policy : on how costs are to be charged to various entities in group: i. Firm recognizes costs per agreement b.
21 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. c. IF there is no policy or contract : then Parent recognizes Net Defined benefit cost in its separate accounts, and subsidiaries only recognise contributions like a Defined contribution plan. d. RELATED PARTY TRANSACTION: as this is one, following disclosures need to be made in EACH firms fin stats.: i. Contract /policy for charging costs etc, or fact that there is none. ii. Policy for determining contributions by that entity iii. If Net Defined Benefit is allocated to individual firms: all normal disclosures for Defined Benefit Plans. iv. If ONLY contributions are accounted for: : then special disclosures see: IAS 19 .34B.d. 3. GROUP ADMINISTRATION PLANS: a. THESE are plans where many firms belong to a single scheme to share admin costs and pool investments, but risks& actuarial stuff is segregated, so that each employee can treat his share of the plan as a separate Defined Benefit Plan .( normally happens in a big group company) 4. STATE PLANS: if they are Defined Benefit Plans they are accounted for as a multi-employer plan, but normally they are operated as a Defined Contribution Plan though. 5. INSURED BENEFITS: if a employer contributes to an Insurance policy, to fund a Defined benefit plan : a. It should be treated as a Defined Contribution Plan UNLESS: i. Employer will be liable to pay out employees if insurance is not enough OR: ii. Must pay employee directly when benefits become due- so insurance does not pay direct buit pays employer instead. b. If treated as a Defined Benefit plan, insurance will be plan assets if qualifies else reimbursement rights
OTHER LONG TERM EMPLOYEE BENEFITS

1. These are employee benefits other than TERMINATION BENEFITS and POST EMPLOYMENT BENEFITS that are not due to be settled within the first 12 months AFTER THE END OF PERIOD in which employee renders the service. part is in current 12 mnths and part is in future 12 mnths it is seens as OTHER LONG TERM BENEFITS since short term definition includes the term wholly. a. Eg : Long service or Sabbatical leave b. Long term disability benefits c. Profit sharing /bonuses payable more than 12 mnths after END OF PERIOD in which service s rendered, d. Deferred Compensation etc. ( note : not after date service was rendered, but after end of period)., 2. Note: , Since these are not subject to same degree of uncertainty as Defined Benefit Plans, a simpler method is allowed here . These are ONLY recognised in P&L , never in OCI at all. - other comprehensive income- is not available. 3. They are done in exactly the same way as a Defined Benfit Plan , exept youjust call the Accounts eg: Sabbatical Leave Defined Benefit Obligation, and Sabbatical Leave Plan Assets. 4. RECOGNITION: a. Long Term Employee benefits works exactly the same as Defined Benefit Obligations, except for 2 things: i. One may not recognise it in OCI at all. ii. Plus all changes in following are recognized in P&L immediately, no Equity Account is allowed at all: 1. current service cost 2. interest cost 3. the expected return on any plan assets (and on any reimbursement right recognised as an asset 4. actuarial gains and losses, which shall all be recognised immediately; 5. past service cost, which shall all be recognised immediately; and 6. the effect of any curtailments or settlements b. Amount recognized as liability for other long term employee benefits is net total of (same as Def.Ben.Obligations) i. PV of defined benefit obligation at reporting date MINUS ii. MINUS Fair value at reporting date of plan assets if any out of which the obligations are to be settled directly. 5. LONG-TERM DISABILITY BENEFIT.: THIS IS A FUNNY THING :
22 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. a. If the level of benefit depends on the length of service, an obligation arises when the service is rendered. Measurement of that obligation reflects the probability that payment will be required and the length of time for which payment is expected to be made. b. If the level of benefit is the same for all employees regardless of time worked or anything, then the expected cost of those benefits is recognized when an event occurs that causes a long-term disability. 6. DISCLOSURE- OTHER LONG TERM EMPLOYEE BENEIFTS a. IAS 19 does not require any special disclosurefor these, ONLY IAS 1 employee benefit disclosures, and IAS24 Related Party Disclosures are required. b. So: even if the same method of accounting must be used as for a defined benefit plan , one DOES NOT NEED TO DO ALL THE DISCLOSURES. c.
TERMINATION BENEFITS
1) There are 2 main rules for defining it: a) If employee says he wants to leave it is NOT a termination benefit, ONLY if employer offers this benefit in return for leaving then it is one (like restructuring or retrenchment) b) IN THIS case the past event that results in a present obligation, to pay termination benefits, is the termination itself, and NOT employee service as it accrues along. So if a factory closes in 10 mnths, and to 120 employees R30 is offered if employee continues work for last 10 mnths , and R10 if he leaves anytime before 10 mnths is up: Then Termination benefit = R10 * 120(all employees can get it auto) and the rest is a Short Term Service benefit of 30-10=R20 for those that stay 10 mnths longer . This service benefit DEPENDS ON SERVICE BEING DELIVERED , so it is a short term employee benefit see journals below. It is written up MNTHLY as service is delivered. The 10 termination is written up as soon as earlier of when uncancellable OR when restructuring costs are written up (see rule below) 2) Usually Term.Benefit is lump sum payments, or continued salary for a few mnths, or as an addition to and as part of a Defined benefit Obligation (but only Paid by it and not part of it as such ) 3) RECOGNITION : An entity shall recognise termination benefits as a liability and an expense at the earlier of : when, and only when, the entity: i) Cannot any longer withdraw the offer (when employee accepts or if some legal restriction applies) ii) OR on date entity recognizes costs for a restructuring that is within scope of IAS37 b) An entity is demonstrably committed to a termination when, and only when, the entity has communicated a formal plan to the employees meeting all following criteria. i) the location, function, and approximate number of employees whose services are to be terminated; ii) the termination benefits in sufficient detail iii) Actions indicate it is unlikely significant changes wiil be made to plan. 4) MEASUREMENT : a) If they are an enhancement of post employment benefits , post-employment benefits requirements must be applied (if there is more than a short period between offer and date of termination it must be considered whether it falls in postemployment benefits category perhaps) . b) Otherwise: i) Wholly settled in 12 mnths after end reporting period: use short-term employee benefit requirements ii) NOT wholly settled within 12 mnths after end reporting period: use long-term employee benefit requirements. Then all future amounts must be discounted to PV. iii) 5) Journal : a) Recording a termination benefit: Staff Costs : Termination Benefits (SCI) R500 (expense) Accrued Termination Benefits (SFP) R500 b) Reversing the termination benefit for some employees who are not being terminated anymore : Paying it out Dr Accrual Benefits Accrued Termination Benefit (SFP) R500
23 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. Staff Costs : Termination Benefits (SCI) R500 (income) c) Paying the benefit out: Accrued Termination Benefits (SFP) R500 Bank (SFP) R500 1. DISCLOSURE : a. No special requirements from IAS 19 , only : i. IAS 1 : requires all employee benfits to be shown UNDER Profit Before Tax Note. ii. IAS 24 (Related Parties) requires Key Mngmnt Personell disclosure.
METHOD:
1. BASICLY : FIRST work out sums of each account in a sum each so Defined Ben. Liab. Account, first, then Plan Assets, Then Reimbusements Assets ,.- only then, with all the figures ready, can you fill in the disclosure. 2. REM: FIRSTWORK OUT THE net liability before you put it in the SFP. (ie liabilities minus assets and then remove effect of unrecognized actuarial and past service cost ) 3. above. 4.
PRESENTATION & DISCLOSURE see example GAAP pg 321.-final disclosure example.

SFP: 1. Post Employment (Defined) Benefit Liability : goes in SFP in Non Current Assets under :Post Employment (Defined) Net Benefit Liability heading. It is not divided up into current & non-current. 2. Post Employment (Contributions) Benefit Liability : just goes in Current Liabilities under Accruals(trade&other creditors I think) 1. SHORT TERM EMPLOYEE BENEFITS: a. NO SPECIFIC requirements by IAS19 , only by other IASs ie: b. IAS1 :requires entity should disclose employee benefit expense : c. IAS 24 : requires entity should disclose employee benefits for key management personnel. (maybe related party heading?) d. Notes: in Notes to the SCI : ( i. IAS 1 : Profit Before Tax Note : 1. separate heading called Other Expenses : a. under this a separate heading called Employee Benefits b. Note: if you have SHORT TERM accrued bonus & accrued leave pay and Salary expense and any other short term items THEY ALL go in just 1 figure into profit before tax NOT split up in separate figures: so all Staff: income gets offset against expense in this one figure per unisa question-. i. if you have an accrued leave pay & accrued bonus etc left over from last year that must be reversed because it was not used: you effectively offset it against this years new accrual to put it in here. AND if there is no accrual this year then you offset it against any other staff costs because you only put 1 figure for ALL short term items in profit before tas note ii. I think all Staff Costs Gross Salaries as a separate point. not sure disclosure for short term benefits - does IAS requirement that all employee staff costs get shown go separate- ? in profit before tax under the employee benefits , separate from benefits to those other than nbona fide mployees and seprate to directors benfits or where? ii. Related parties : IAS24 : Key Mngmnt Personnel: SCI note : in its own separate heading , only key
24 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. mngmnt personnel. for IAS 24 related parties. Is this correct does it get ots own heading must ONLY related key mngmnt go here or ALL key mngmnt . can the note for profit before tax for directors be good enough to cover this or must it all be done again? 2. OTHER LONG TERM EMPLOYEE BENEFITS a. NO SPECIFIC requirements by IAS19 , only by other IASs ie: b. IAS1 :requires entity should disclose Other long term employee benefit expense separately if it is MATERIAL. c. IAS 24 : requires entity should disclose OTHER LONG TERM employee benefits for key management personnel separately. (maybe related party heading?) d. Notes: in Notes to the SCI : i. Profit Before Tax Note : 1. separate heading called Other Expenses : a. under this a separate heading called Employee Benefits i. I think all Staff Costs OTHER LONG TERM EMPLOYEE benefitsBLOCKED OFF UNDER EMPLOYEEBENEFITS TOTAL : as a separate point. not sure disclosure for short term benefits - does IAS requirement that all employee staff costs get shown go- ? in profit before tax under the employee benefits , separate from benefits to those other than nbona fide mployees and seprate to directors benfits or where? ii. Key Mngmnt Personnel: SCI note : in its own separate heading , OTHER LONG TERM EMPLOYEE benfits for only key mngmnt personnel. for IAS 24 related parties. 3. TERMINATION BENEFITS a. IAS 19 : Where there is uncertainty about the number of employees who will accept an offer of termination benefits, a contingent liability exists. As required by IAS 37 an entity discloses information about the contingent liability unless the possibility of an outflow in settlement is remote. b. IAS1 :requires entity should disclose Other long term employee benefit expense separately if it is MATERIAL. c. IAS 24 : requires entity should disclose OTHER LONG TERM employee benefits for key management personnel separately. (maybe related party heading?) d. Notes: in Notes to the SCI : i. Profit Before Tax Note : 1. separate heading called Other Expenses : a. under this a separate heading called Employee Benefits i. heading called termination benefits BLOCKED OFF UNDER IT ii. Key Mngmnt Personnel: SCI note : in its own separate heading , OTHER LONG TERM EMPLOYEE benfits for only key mngmnt personnel. for IAS 24 related parties. 4. DEFINED CONTRIBUTION PLANS a. Only the AMOUNT of CONTRIBUTIONS MUST BE SHOWN AS FOLLOWS: b. Profit Before Tax Note : i. separate heading called Other Expenses : 1. under this a separate heading called Employee Benefits a. Defined Contribution Plans Expense as a heading with just the amount .(separate here from other staff costs) ii. Key Mngmnt Personnel: SCI note : in its own separate heading , SEPARATELY just the Defined Contribution Plans contributions for key mngmnt only for IAS 24 related parties 5. DEFINED BENEFIT PLANS: a. OFFSETTING 2 DIFFERENT SEPARATE PLANS liabilities & assets IN FIN STATS: i. Firm may only offset 2 plans liabilities VS assets if they : (otherwise separate amounts must be shown in fn stats for each-) 1. Legally enforceable right to use surplus in one plan to settle obligations in other 2. AND Intends to settle on a net basis or reaslise surplus in one plan and settle obligation in other simultaneously.
25 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. b. DISCLOSURE: c. DISCLOSE per IAS 19 all info. users may need to evaluate nature & financial effect of plans . In particular: i. Accounting Policy Note : 1. Defined Contribution fund: contributions recognized as an expense in period paid to fund. 2. Defined benfit Fund: a. Cost of benfits is based on projected unit credit method b. Actuarial valuations are performed at every Fin Reprting date c. The SFP figure = sum of Defin,Ben.Oblig +Plan Assets /+ Unrecognised Actuarial Gains /Losses +/-Unrecognised Past Service Cost d. Method used for recognizing Actuarial Gains & Losses.eg corridor method or P&L or OCI e. Past Service cost recognition method: ie vested benfit immediate & unvested : straight line basis over avg period of vesting. :ALL VESTED AND UNVESTED MUST GOIN HERE. ii. Profit Before Tax Note: 1. Other Expenses : heading a. Employees Remuneration: heading i. Termination benefits ii. Other Long Term Employee Benefits iii. Defined Contribution Plan Expense: xxx iv. Defined Benfit Plan Expense : xxx 1. Current Service cost 2. Past Service Cost : 3. NET Interest Cost : ( this is Plan Assets Expec.Return + Defined Obligation added up 4. Actuarial Gain/Loss recognized ( unless changed IAS19 to immediate?)
iii. NOTE 1 :NET DEFINED BENEFIT LIABILITY ( Defined Benefit Plans Only) - Separate Note: 1. Reconcilliation of : O/B and C/B of NET Liability (actual SFP heading total) showing full calc: ie: a. Asset Ceiling Adjustments b. ALL PAST SERVICE COSTS, CURRENT SERVICE COSTS, INTEREST BLOCKEDUNDER NET INTEREST, REMEASUREMENTS, ACTUARIAL GAINS ETC ETC MUST BE SHOWN. c. ( dont show the plan assets and DefBenOblig. Liabiliity at all JUST the changes) d. NET TOTAL AMOUNT 2. Reconcilliation of O/B and C/B of Defined Benefit Obligation account showing: a. O/B b. Current service cost c. Past service cost : split vested & non-vested benefit to show.(rem all are in here!) d. Actuarial gains/losses e. Interest cost f. Curtailments & settlements g. Business combinations h. Translation differences i. Benefits paid j. C/B TOTAL AT END OF YEAR 3. Reconcilliation of : O/B and C/B of Plan Assets account: a. O/B b. Expected return that yr. c. Contributions d. Benfits paid e. Curtailments & settlements
26 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. f. g. h. i. Business combinations Translation differences Revaluations Differences C/B end of year
4. Reconcilliation of : O/B and C/B asset ceiling account a. o/b b. CHANGES c. C/B 5. Reconcilliation of : O/B and C/B of REIMBURSEMENT RIGHTS account: a. O/B b. Expected return that yr c. Other d. C/B end of year iv. NOTE 2 : POST EMPLOYEMENT BENEFIT INFORMATION : 1. 2. For all these below, unisa just does a brief description of the plan per b below) just put these as 5,6,7 etc following on from recons at top. If question gives you the info- put it in ,else leave it out. a. Brief Description of defined Benfit& defined contribution plans , and choice of employees to join them etc b. Description of each type of plan eg: post employment medical plan / flat salary pension plan / final salary pension plan. , Actuarial Remeasurement done Yearly, Last actuarial remeasurement done at xx date. c. Curtailments , Settlements Amendments that occoured. d. Risks of Plan : eg only invested in property, so exposed to property risk. e. Governance : eg board of trustees etc f. Regulatory framework eg Pensions Fund Act g. PLAN ASSETS CLASSES OF ASSTES: eg : i. Shares : fair value = xxx ii. Property : fair value = xxx iii. Cash =xxx h. PLAN ASSETS: ALSO DISCLOSE : i. Any of entities own Fin Instruments held : Fair value ii. Any Plan assets property occupied or assets used by entity itself i. EXPECTED CONTRIBUTIONS TO PLAN IN NEXT PERIOD(not sure if you must still show this in new IAS 19 j. ANY AMENDMENT TO PLANS k. ACTUARIAL ASSUMPTIONS USED FOR PV OF DEFINED BENFIT OBLIGATION i. Discount rate ii. Future Salry Increases iii. % ofemployees opting forearly retirement iv. Etc l. Sensitivity analysis of actuarial assumptions and other actuarial stuff as well see ias 19. 6. MULTI-EMPLOYER PLANS: a. All disclosures of a normal Defined Benefit Plan PLUS: b. Funding arrangements description : ie how contributions are calculated between firms + any minimum funding requirements c. Descr. Of liability of entity for other entities obligations under plan d. Descr. Of agreed allocation of surplus /deficit between firms e. IF ENTITY ACCOUNTS FOR PLAN AS DEFINED CONTRIBUTION PLAN INSTEAD: i. Just b-d above and plus: ii. Fact plan is defined benefit plan actually, not contribution
27 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. iii. Reason why insufficient info to disclose as defined benfit plan iv. Expected contributions for next reporting period v. Any current Deficit /surplus in plan that may affect contributions vi. Indicate level % of entity participation vs other entities vii. 7. DEFINED BENEFIT PLANS THAT SHARE RIKS BETWEEN DIFFERENT ENTITIES: a. The contractual agreement for charging benefit cost b. Policy for determining contribution to be paid c. IF ENTITY ACCOUNTS FOR A PORTION OF DEFINED BENEFIT COST : all info about plan as a whole same as any defined benefit plan not sure if about allocated portion or whole plan ask??? d. IF ENTITY ACCOUNTS FOR CONTRIBUTION payable only : only info on WHOLE PLAN not just allocated portionsee IAS 19 for exact paragraphs to include. 8. DISCLOSURES FROM OTHER IASS: a. IAS 24 RELATED PARTIES : KEY MNGMNT PERSONELL REMUNERATION b. IAS 1 : EMPLYEE BENFITS c. IAS 37 : CONTINGENT LIABILITES : U FROM SOME OBLIGATIONS WHERE EG NO. OF PEIOLE WHO ARE LEAVING IS NOT KNOWN
LEASES IAS 17 ,IFRIC 4, SIC15, SIC27, CIRCULAR 1/2006&12/2006

BASICS: SCOPE: 1) TOTAL EXCLUSIONS: (a) leases to explore for or use MINERALS, OIL, NATURAL GAS AND SIMILAR non-regenerative resources; and (b) LICENSING / PATENTS AGREEMENTS for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. Only THE INTANGIBLE ASSETS IAS STATEMENT APPLIES TO THESE ONES. 2) FOLLOWING ARE ONES WHERE ONLY MEASUREMENT BASIS EXCLUDED, RECOGNITION CRITERA STILL COUNTS : However, this Standard shall not be applied as the basis of measurement for: (a) Investment Property Finance Lease : investment property held by lessees that is accounted for as (see IAS 40 Investment Property) (b) Investment Property Youre The Lessor Operating Lease : provided by lessors under operating leases (see IAS 40); (c) Biological Assets Finance Leaseheld : by lessees under finance leases (see IAS 41 Agriculture) or (d) Biological Assets Youre The Lessor :operating lease provided by lessors under operating leases (see IAS 41). DEFINITIONS: Definitions 4 The following terms are used in this Standard with the meanings specified: A lease is an agreement whereby the1- lessor conveys to the lessee in return for a 2- payment or 3-series of payments the 4-right to use an asset for an 5-agreed period of time. HIRE PURCHASE : 6 The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfilment of agreed conditions. These contracts are sometimes known as hire purchase contracts. A finance lease is a 1-lease that 2-transfers substantially all the risks and rewards 3-incidental to ownership of an asset. 4-Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease. A non-cancellable lease is a lease that is cancellable only: (a) upon the occurrence of some remote contingency; (y/n ???OR /ANDI think) (b) with the permission of the lessor; (y/n??? ORAND I think) (c) if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or (d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain. THE INCEPTION OF THE LEASE is the earlier of the date of the (signing I think) lease agreement and the date of commitment by the parties(oral/other) to the principal provisions of the lease. As at this date: (a) a lease is classified as either an operating or a finance lease; and (b) in the case of a finance lease, the amounts to be recognised at the commencement of the lease term are determined.
29 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. 5 A lease agreement or commitment may include a provision to adjust the lease payments for changes in the construction or acquisition cost of the leased property or for changes in some other measure of cost or value, such as general price levels, or in the lessors costs of financing the lease, during the period between the inception of the lease and the commencement of the lease term. If so, the effect of any such changes shall be deemed to have taken place at the inception of the lease for the purposes of this Standard.
THE COMMENCEMENT OF THE LEASE TERM is the date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease (ie the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate). The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. MINIMUM LEASE PAYMENTS are the payments over the lease term that the lessee is or can be required to make, EXCLUDING contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with: (a) for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or (b) for a lessor, any residual value guaranteed to the lessor by: (i) the lessee; (ii) a party related to the lessee; or (iii) Only By a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. Economic life is either: (a) the period over which an asset is expected to be economically usable by one or more users; or (b) the number of production or similar units expected to be obtained from the asset by one or more users. Useful life is the estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity. Guaranteed residual value is: (a) for a lessee, that part of the residual value that is guaranteed by the lessee or by a party related to the lessee (the amount of the guarantee being the MAXIMUM AMOUNT that could, in any event, become payable); and (b) for a lessor, that part of the residual value that is guaranteed by the lessee or by a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.( NB: if guaranteed by PARTY UNRELATED TO LESSEE IT does not qualify as guaranteed for eyes of lessee, but does for eyes of lessor) Unguaranteed residual value is that portion of the residual value of the leased asset, the realisation of which by the lessor is not assured or is guaranteed solely by a party related to the lessor. Initial direct costs are incremental costs that are directly attributable to negotiating and arranging a lease, except for such costs incurred by manufacturer or dealer lessors. (SO WHICH LESSORS ARE not DEALERS, SO ISSO DOES TTHIS only MEAN PRIVATE PERSONS OR WHO?SOR IS not A DEALER AANY BUSINESS WHO LEASES SOMETHING OUT IS A DEALER IN SOMETHING OR OTHER?) Gross investment in the lease is the aggregate of:
30 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. (a) the minimum lease payments receivable by the lessor under a finance lease, and (b) any unguaranteed residual value (note this means it is imaginary figures here-for theory purposes, do you use it for any book entries ?, must you first deduct the unguaranteed amounts before doing any accounting entry I am sure) accruing to the lessor.(why unguaranteed, why not Guaranteed? And so does this exclude anything that is guaranteed or not?)answ: I think it means the guaranteed part is incl. in (a) ie minimum lease payments because it is guaranteed , and this (b) is just extra o n top of that. Net investment in the lease is the gross investment in the lease discounted at the interest rate implicit in the lease. Unearned finance income is the difference between: ( so watch out the residual value has been DISCOUNTED here, so you cannot simply get unearned finance income in an exam question by adding interest unearned you have to use this method cause it incl. all residual values discounted to PV. As well ! Not just interest ! NB you will not get this from the table I think!) (a) the gross investment in the lease, and (b) the net investment in the lease. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the lessor. ( So it comes from a base of (i)fair value of the leased asset and (ii) any initial direct costs of the lessor, NOT from the current market value or anything so to actually work it out you use this and not any other method or market rate: these MUST be incuded: a-fair value, b-initial costs,c- minimum lease pymnts,d-unguaranteed residual val. The lessees incremental borrowing rate of interest is the rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to purchase the asset. Contingent rent is that portion of the lease payments that is not fixed in amount but is based on the future amount of a factor that changes other than with the passage of time (eg percentage of future sales, amount of future use, future price indices, future market rates of interest). FUNDAMENTAL CONCEPTS: NOTE THESE TRICKY TERMS BEFORE CONTINUING THEY ARE CONVOLUTED. 1. Note: all special terms below are defined in the GLOSSARY in begin of IAS 37 so look there for any discrepencies in weird terms , not in middle of ias 37 1. VERY NB: a. Implicit Interest Rate : both lessee and lessor use the same % for: Both lessee and lessor MUST use EXACTLY the same % for interest rate implicit as well as same method to calc. Implicit interest rate(unless lessee lacks info then he uses market rate) , so they both use unguaranteed residual value as part of the calc- but : b. Minimum Lease Payments: for this one both use DIFFERENT METHODS and get different figures at times. Minimum lease payments is calc using ONLY Guaranteed residual by a connected party by lessee BUT an unconnected party who Guarantees may be used by the lessor , but not lessee, to calculate Minimum lease payments- SEE definitions below c. Classifying: Both are used when finding out if SUBSTANTIALLY the major part of the fair value +initial costs was paid for by the lease when you use this point to help classify a lease so with differences in working out WATCH OUT for this! One party may classify it as a finance and other as operating because of this 2. A FINANCE LEASE is a 1-lease that 2-transfers substantially all the risks and rewards 3-incidental to ownership of an asset. 4-Title may or may not eventually be transferred. 3. AN OPERATING LEASE is a lease other than a finance lease. 4. INCEPTION VS COMMENCEMENT OF LEASE: the commencement is when you do the very firat accounting entries, and that is when the first ACTUAL transfer of lessee can exercise his rights to use the asset is transferred.The inception is when the agreement is made, months before maybe there you just decide on type/etc no entries are made yet. 5. INITIAL DIRECT COSTS are incremental costs that are directly attributable to negotiating and arranging a lease, except for such costs incurred by manufacturer or dealer lessors. (SO WHICH LESSORS ARE not DEALERS, SO ISSO DOES TTHIS only
31 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. MEAN PRIVATE PERSONS OR WHO?SOR IS not A DEALER AANY BUSINESS WHO LEASES SOMETHING OUT IS A DEALER IN SOMETHING OR OTHER?) GROSS INVESTMENT IN THE LEASE is the aggregate of: a. (a) the minimum lease payments receivable by the lessor under a finance lease, and b. (b) any unguaranteed residual value (note this means it is imaginary figures here-for theory purposes, do you use it for any book entries ?, must you first deduct the unguaranteed amounts before doing any accounting entry I am sure) accruing to the lessor.(why unguaranteed, why not Guaranteed? And so does this exclude anything that is guaranteed or not?)answ: I think it means the guaranteed part is incl. in (a) ie minimum lease payments because it is guaranteed , and this (b) is just extra on top of that. NET INVESTMENT IN THE LEASE is the gross investment in the lease discounted at the interest rate implicit in the lease. UNEARNED FINANCE INCOME is the difference between: ( so watch out the residual value has been DISCOUNTED here, so you cannot simply get unearned finance income in an exam question by adding interest unearned you have to use this method cause it incl. all residual values discounted to PV. As well ! Not just interest ! NB you will not get this from the table I think!) a. (a) the gross investment in the lease, and b. (b) the net investment in the lease. THE INTEREST RATE IMPLICIT IN the lease a. 1st : if it is not possible for lessee to calc. the interest rate implicit because he does not have the info. from lessor (fair value & initial expenses capitalised ) then he MUST use the incremental borrowing rate instead(market rate) b. is the discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the lessor. ( So it is NOT just the interest payments or cost vs payments- it is very tricky , you must use this tricky method : Note : it comes from a base of (i)fair value of the leased asset and (ii) any initial direct costs of the lessor , NOT from the current market value or anything so to actually work it out you use this and not any other method or market rate: these MUST be incuded: a-fair value, b-initial costs, cminimum lease pymnts, d-unguaranteed residual val. THE LESSEES INCREMENTAL BORROWING RATE OF INTEREST a. 1st : if it is not possible for lessee to calc. the interest rate implicit because he does not have the info. from lessor (fair value & initial expenses capitalised ) then he MUST use the incremental borrowing rate instead(market rate) b. is the rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to purchase the asset. THE LEASE TERM is the non-cancellable period (book says if lease term is 10 yrs but it is cancelable after 8 yrs, then lease term is REGARDED as being only 8 yrs) for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. GUARANTEED /UNGUARANTEED RESIDUAL VALUE: guaranteed means lessor definitely gets that value at end of lease term as the residual value of asset it could also be in form of asset itself but will definitely be filled in by cash payment if asset is worth less at the time he gets back unguaranteed is merely what asset estimated value at end of term no fill up cash payment if its value is less. (NB: if guaranteed by PARTY UNRELATED TO LESSEE IT does not qualify as guaranteed for eyes of lessee, but does for eyes of lessor) a. The existence of an unguaranteed reidual value impies that lessee will return asset tolessor who will dispose of it at the unguarateed residual value b. MINIMUM LEASE PAYMENTS are the payments over the lease term that the lessee is or can be required to make, EXCLUDING contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with: a. Rty (a) for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or (not by a party unrelated) b. (b) for a lessor, any residual value guaranteed to the lessor by: i. (i) the lessee; ii. (ii) a party related to the lessee; or iii. (iii) Only By a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. ( ie: a party unrelated to lessee as well)
6.
7. 8.
9.
10.
11.
12.
13.
32 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it. (NB: if guaranteed by PARTY UNRELATED TO LESSEE IT does not qualify as amounts guaranteed for eyes of lessee, but does for eyes of lessor) 14. ECONOMIC VS USEFUL LIFE: ECONOMIC LIFE IS units production or LENGTH OF time ALL FUTURE users can use it FOR , USEFUL life is time from commencement of lease that current user entity (not all future users) expects to consume economic benefits from asset , without limitation by the lease term . 15. DEPRECIABLE USEFUL LIFE :the actusal useful life used to depreciate item is the shorter of either the : a. USEFUL LIFE CLASSIFICATION OF LEASES: BASIC RULE : 2. Leases u can either be classified as finance leases or operating leases : it based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. If it lies with lessor it is operating lease, if lies with lessee it is finance lease- SUBSTANCE OVER form is the rule that causes all this. 3. Note: a. Both lessee and lessor MUST use exact same method to calc. Implicit interest rate(unless lessee lacks info then he uses market rate) , so they both use unguaranteed residual value as part of the calc- but Minimum lease payments is calc using ONLY Guaranteed residual by a connected party by lessee BUT an unconnected party who Guarantees may be used by the lessor , but not lessee to calc. Minimum lease payments. b. Classifying: Both are used when finding out if SUBSTANTIALLY the major part of the fair value +initial costs was paid for by the lease when you use this point to help classify a lease so with differences in working out WATCH OUT for this! One party may classify it as a finance and other as operating because of this GENERAL POINTS: 1. Since all leases transfer a certain amount orf risk&reward- the differentiating factor is SUBSTANTIALLY all risks&rewards must be transferred. 2. Exceptions :Per IAS 17 , it actually says the application of the definitions to differing circumstances of the lessor and lessee may result in the same lease being classified differently by them. For example, this may be the case if the lessor benefits from a residual value guarantee provided by a party unrelated to the lessee. [per textbook it could sometimes be classified as operating lease by one and finance lease by another.] 3. Recassifying leases If after inception the contract changes by agreement , and this would have resulted in it being classified differently at inception , then the old agreement stops and a new one is formed. BUT generally even though small changes occour , the classification stays the same all the way through. (not reclassified if merely useful life of asset changes or if lease is renewed it is also NOT reclassified) (?how does this work?) 4. 5. Special cases : see the examples below from IAS 17 and SIC 27 for special cases you would never have thought are a financial lease but are. a. Lessor could get/receive maintenance payments for repairing and it could still be a finance lease anyway. b. If Asset transfers at end of lease at fair value to lessee since the risk of the fair value chnging is borne by the lessor, it is not a finance lease , since not substantially all the risk was trasferred to lessee even if eg the lease is for major part of economic life PLUS minimum lease payments approximate fair value etc very funny one mentioned in IAS 17. c. If substantially most of value of leased asset = PV of Minimum lease payments is a very important item when considering if it is a finance lease : BUT because of Minimum lease payments is worked out different for both parties but implicit interest rate is worked out the same for both parties one may get a different figure to other and have to classify it different to the other party very easily because of this reason It happens easy.
EXAMPLES : 1. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: 2. Note though: 12 The examples and indicators in paragraphs 10 and 11 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all risks and rewards incidental to ownership, the lease is classified as an operating lease. For example, this may be the case if ownership of the asset transfers at the end of the lease for a variable payment equal to its then fair value, or if there are contingent rents, as a result of which the lessee does not have substantially all such risks and rewards. (a) the lease transfers ownership of the asset to the lessee by the end of the lease term; (b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; (c) NB: the lease term is for the major part of the economic life of the asset even if title is not transferred; * See also SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. (d) ) NB: at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and (e) NB the leased assets are of such a specialised nature that only the lessee can use them without major modifications. 11 Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are: (a) NB if the lessee can cancel the lease, the lessors losses associated with the cancellation are borne by the lessee; (b) NB gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equalling most of the sales proceeds at the end of the lease); [whats this ? I think this means if lessor sells it at end of lease, then most of proceeds becomes a rebate on the last rentals owed by lessee before the sale] and (c) NB the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.
34 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. SPECIAL CASE : CLASSIFYING LAND LEASES . 1. Land: because the land has an indefinite useful life , all the other factors are used to determine if it is a finance lease or not transfer of ownership/option to buy at low price/or PV of lease payments=substantially all of FV of land, same as any other lease rules , count instead- so look at those , not the indefinite useful life. But becasue it has an indefinite useful life it is difficult to classify as a finance lease very complex allways research textbooks etc. 2. Per textbook : indicators such as transfer of ownership of land, an option to buy land at less than fair value,or the PV of minimun lease payments amountingh to substantially all of the fair value of the land , will result in a lease of land being classifed as a finance lease. 3. For a lease for land and buildingsa. because the land has an indefinite life , the buildings and land get classified separately when the lease is classified. So land could be seen as an operating lease and buildings finance lease or visa versa etc. b. To allocate a single minimum lease payments to these 2: use the fair values of each % wise to allocate. c. Exception: if both are recorded as an investment property in lessees books using FAIR VALUE model, then you do not separate them they get treated as one. d. If impossible to allocate then entire lease is classified as a Finance lease unless both are operating leases.(What is the useful life if land and buildings are both material). 4. VAT : NOTE : special attention needs to be applied to the treatment of VAT. This is because : per txtbk: as the lease of land & buildings will not qualify as an installment credit agreement for VAT purposes, VAT will be chanrged on each individual installment when that installment is paid .
operating lease's in financial records of lessee:

1. Only funny thing with these is that you have to equalize all rent payments made on a staright line basis over the period of the lease- unless another basis is more representative of the benefits (must be very clear,not hazy-else use straight line
35 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. only) to lessee- so if 100 paid first mnth and 10 thereafter for next 5 mnths it becomes you book ONLY (100+10*5)/6 = 25 per mnth as rent expense and NOT 100 or 10 or anything else. To equalize special cases: a. Incentives: these are all included in the above calculation, whether in cash or otherwise :eg: lessor pays cancellation fees of lessees old lease , or reduced rates for a period: They are Booked as an expense CONTRA liability called INCENTIVE , like you now owe the lessor for paying your relocation costs, which you must pay him back by paying rent each month.So it is not added to rent, you IMAGINE it to be somehow included in rent you pay anyway. So you as a completely separate journal entry straightline it from liability to rent expense each month as an inaginary extra rent expense. b. Fixed increases : it can only be done for : for lease must be passing of time ie 10% escalation, these MUST be eqalised so no passing of time increases show in the books! c. Contingency Rent : these are NOT inclided in the above calculation eg inflation rate or % of profit per mnth ,amount of usage of item, interest rate changes, price indices etc are NOT eqaulised but added separately each mnth to TO THE ACTUAL RENT EXPENSE ACCOUNT . OTHER EXPENSES IN P&L : Rent Expense , as well as Maintenance Expense & Insurance Expense on leases are included in OTHER EXPENSES in the P&L per textbook. JOURNALS : TYPE 1 : (u just showing starightlining of the rent expense if there are unequal rent payments each month, or a large pre-payment etc) a. DR: Rent Paid b. DR : Insurance & Maintenance Expense (other expenses in SCI) (separate from rental) c. DR : Rental Paid in Advance u(for straight lined part of rent overpaid in cash this month- reverses in later mnths) i. CR : BANK d. (Narration : Being Payment of Rent ) JOURNALS : TYPE 2 : with incentive payment of relocartion costs by the lessor, and instead of 1st mnth being overpaid from straightlining, it is underpaid per books higher figure: a. DR: Rent Paid b. DR : Insurance & Maintenance Expense (other expenses in SCI) (separate from rental) i. DR : Rental Owed u(for straight lined part of rent paid in cash but books say it was supposed to be more t-so underpaid- due to straightling -this month- reverses in later mnths) ii. CR : BANK c. Initial Recognition of Incentive Paid by Lessor d. DR : RELOCATION COSTS (you book an expense here, even though the lessor paid for it, cause you say you get this benefit in another way by REDUCING your rental expense each month over lenght of the lease.) i. CR : INCENTIVE LIABILITY (in effect somehow owed to lessor now- you amortise it over lease timeframe to rent expense) e. Monthly amortisation to Rent Expense f. DR INCENTIVE LIABILITY ( move this mnths portion to rental expense) i. CR RENTAL EXPENSE ( amortised incentive liability REDUCES your rental expense each mnth over time of lease.)
2.
3. 4.
5.
operating lease's in financial records of lessor:

1. Depreciation: normal depreciation continues except if it is investment property held at fair value of course where it is of course not depreciated but if investment prop.held at cost model there is depreciation of course, and all costs incurred in earning rent income as well as depreciation are all seen as normal expense, not as some special part of rent thing somehow. 2. CAPITALISE AGENTS FEE: as an addition to this type of thing, but not direct;y to do with leases : if lessor pays an agent a fee to find a tennant , he can capitalise the fee to asset cost, and amortise it as a separately depreciable component of the asset over the lease term- was done in example in book. But has nothing to do with leases really just a note. 3. Special treatements:
36 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. a. Equalisation of rents received: with these is that you have to equalize all rent payments received ,same as for the lessee, on a staright line basis over the period of the lease- unless another basis is more representative of the benefits (must be very clear,not hazy-else use straight line only) to lessor are diminished- so if 100 paid first mnth and 10 thereafter for next 5 mnths it becomes you book ONLY (100+10*5)/6 = 25 per mnth as rent income and NOT 100 or 10 or anything else. i. To equalize special cases: 1. Incentives: these are all included in the above calculation, whether in cash or otherwise :eg: lessor pays cancellation fees of lessees old lease , or reduced rates for a period,(these types of incentives are not seen as initial direct costs to be capitalized) 2. Fixed increases : it can only be done for : for lease must be passing of time ie 10% escalation, these MUST be equalised so no passing of time increases show in the books! 3. contingency rent: these are NOT included in the above calculation eg inflation rate or % of profit per mnth ,amount of usage of item, interest rate changes, price indices etc are NOT eqaulised but added separately each mnth DIRECT TO THE RENTAL EXPENSE in the books. b. Initial direct costs are capitalisated: initial direct costs of negotiating and arranging a lease(can you add hotel,flights,car hire,entertainment?) are capitalized to carrying amount of asset (really) (and then expensed over the lease term see pg 195 gaap textbook yellow - on same equalised type of basis like the rent income- but separately from rent .what do you do with the capitalized part- write it off for every expense recorded so DR expense CR asset account each month or what?where do you recognize it over period on a straight line basis- see pg195 gaap exampleas well wheredid they recognize it as an expense over period?) own ans: it seems from example in book you actually depreciate the separately capitalized expense separately as a component part of the carrying amount of asset in order to write the capitalized initial direct cost off as an expense over the lease period in an equalized way! c. Receipts for services provided: eh maintenance & insurance costs : these are recognized separate from the rent, like normal revenue ie in same year as related expenses . rem , like for IAS 18 Revenue- if lessor acts as agent eg insurance then only the NET income is recognized as revenue(ie markup) , but if not acting as an agent eg maintenance then full value is recorded as income(1st where do they do this in the example pg 195 gaap , and 2nd what if you are a propery mngmnt firm question not for leases but revenue and outsource maintenance for buildings you look after when you pay the plumber and get paid by the property owner, how do you record the expense and the income and revenue in the journals- as normal but only at year end when trading account / fin stats is done you put net income as revenue rest of income as other income or what? Or ignore it ? and expense you paid as other expenses do you ignore all expenses here and leave them out SCI cause not any related revenue shown or what?-what a mix up with false SFP portrayal- and do you use this methods for these leases or for other types of agent revenue as well as leases? note in example they just ignored the agent thing for insurance and did it same as maintenance. 4. JOURNALS : TYPE 1 : (u just showing starightlining of the rent expense if there are unequal rent payments each month, or a large pre-payment etc) i. CR: Rent Received ii. CR : Insurance & Maintenance Received iii. CR : Rental Received in Advance (for straight lined part of rent - reverses in later mnths OR could be Rent Receivable : Owed To You By Debtor if straightlineing was other way around) b. DR : BANK c. (Narration : Being Receipt of Rent ) 5. JOURNALS : TYPE 2 : with incentive payment of relocartion costs by the lessor, and instead of 1st mnth being overpaid from straightlining, it is underpaid per books higher figure: i. CR: Rent Received ii. CR : Insurance & Maintenance Received iii. CR : Rental Received in Advance (for straight lined part of rent - reverses in later mnths OR could be RENT RECEIVABLE : Owed To You By Debtor if straightlineing was other way around) b. Initial Recognition of Incentive Relocation costs paid of lessee. c. DR : BANK
37 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. i. CR : RELOCATION COSTS PAID FOR LESSEE (you paid for it, THEN you say you subtract it from your rental received each month over length of the lease instead of in one go.) d. Monthly amortisation : e. DR : INCENTIVE ASSET DEBTOR: PAID RELOCATION COSTS : (in effect somehow owed by lessee to you now- you amortise it over lease timeframe to rent received WHERE it decreases the amount of money you get each month so you are amortising a pre-paid expense sort of NOTE : it decreases, not increases, what youi book as the rent received each month casue you paid out a vast sum at begin of lease ) i. CR INCENTIVE LIABILITY ( move this mnths portion to rental RECEIVED) f. DR RENTAL RECEIVED ( amortised incentive ASSETy)
FINANCE LEASES IN BOOKS OF LESSEE:

1. The asset & related liability may not be set off against each other Recognition: 1. AT COMMENCEMENT both asset & related liability are recorded in books at LOWER OF FOLLOWING : (calculated at inception , if changed till date commence then it is deemed new amount was already there at inception) a. Fair value at inception b. Or PV of Minimum lease payments use implied interest rate as discounting factor. 2. DIRECT COSTS OF INITIATING LEASE these must be capitalized and added to the carrying amount on top of what you put in your books from the above . 3. DEPRECIATION : asset is depreciated EITHER a. Over shorter of the lease term or its Useful life if there is no certaintly entity will obtain asset at end of the lease term b. Or its Useful Life only ,if there Is Certainty that the entity will obtain asset at end of lease term. 4. Subsequent measurement: 1. DEPRECIATION : asset is depreciated EITHER a. Over shorter of the lease term or its Useful life if there is No certaintly entity will obtain asset at end of the lease term b. Or its Useful Life only ,if there Is Certainty that the entity will obtain asset at end of lease term. 2. CONTINGENT RENTS and FEES : these are NOT included in the calculation and are charged as expense when incurred 3. FINANCE CHARGES AND CAPITAL REPAYMENTS : are divided up and apportioned each month separately in the books to a. Finance charges : (to be apportioned equalized to produce a constant periodic rate of interest- some for of approximation may be used to simplify the calculation) Even if actual payments are done in different amounts to these , it is booked like this and the actual money paid or owed is booked as pre-paid expenses or expenses owed (you just use a creditor account and the actual cash movements make no difference to the journal entries here!) b. Capital repayments : first you deduct the finance charge from payment made , then whats left goes to capital repay basicly. Installments payable in Advance 1. Here the only 2 differences are: a. the First capital amount is paid at begin Yr1, but the first Interest amount at begin Yr2, because interst is never paid in advance since it has not been earned yet.. b. Then the finance charges are never paid in the same period in which they accrue- because they are paid together with the capital at the begin of every year. So the first years interest charges are only paid in THE BEGIN of the second year because interest is never paid in advance and the payment goes together with the capital paid at start of every period since the payments are NEVER split up- it is 1 amount.
38 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. METHOD: 2. Step 1 : WORKOUT THE INTEREST RATE IMPLICITIN THE LEASE (includes unguaranteed residual value) a. If it is impossible, then the market rate must be used incremental borrowing rate. 3. Step 2: Calc the PV of min. lease payments. ( excludes unguaranteed residual value) a. The existence of an unguaranteed reidual value impies that lessee will return asset tolessor who will dispose of it at the unguarateed residual value 4. Step 3: ASSETS PORTION : lease is recognised at LOWER of fair value AND PV of minimun lease payments a. LESSEE MUST CAPITALISE any of his initial direct costs , BUT only the lessors initial direct costs are used to calc. the interest rate implicit in the lease , NOT the lessees he just records them separately capitalises them to same asset account he sends rest of assets value to .BUT this initial direct costs are NOT included in the Lease Finance liability of lessee- at all so the 2 will be different . (the second is a creditor amount owing on lease account). 5. Step 4: LIABILITY PORTION : is recognised at LOWER of fair value AND PV of minimun lease payments. NO initial direct costs are however capitaised to it at all- ZERO- so it can be differnt from asset value 6. Step 5: Every period of payment the Interesyt & Capital Portions are capitalied separately : a. JOURNALS b. LEASE LIABILITY ACCOUNT Principle repayements c. INTEREST EXPENSE i. BANK 7. Step 6: deprectaition: a. at the useful life ofthe asset : IF LESSEE DEFINITELY RETAINS POSSESION AT END OF LEASE b. OR AT the LIFE = period of the lease IF THE owner does not retain possesion. INTEREST PAYMENTS IN MIDDLE OF YEAR ; ACCRUAL TO BE RAISED AT YEAR END FOR INTEREST OWING 1. All the steps above remain the same , there is only 1 change: THE JOURNALS FOR RECORDING INTEREST ARE DIFFERENT : 2. At the end of each year an accrued interest journla entry must be raised for interest you owe for the half year past, BUT which only gets paid in next year AT END OF EACH YEAR PASSED SINCE BEGIN MONTH OF LEASE. 3. Then this accrued interest half year worth is used as part of the interest payment REDUCING ONLY the interest expense in the journal when it is paid since you recognised this other half last year as interest income. 4. JOURNALS a. END OF YEAR ACCRUAL: b. Interest Expense SCI i. Accrued Interest Expense (SFP c. NEXT YEAR USE THIS ACCRUAL UP WHEN LEASE INSTALLMENT IS PAID: d. LEASE LIABILITY ACCOUNT Principle repayements e. Accrued Interst Expense = f. INTEREST EXPENSE =1/2 i. BANK INSTALMENTS PAYABLE IN ADVANCE 1. INTEREST RATE VARIATIONS: 1.
39 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. IAS10 EVENTS AFTER THE REPORTING PERIOD : IAS10 MAJOR POINT IN IAS 10: 1. If the event existed at/before balance sheet date it is more towards adjusting , if it only happened AFTER (in whole , not part) it is non-adjusting. BACKGROUND 1. IAS 10 should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. 2. Whereas provisions, Contingent liabilities & assets are applicable when UNCERTAINTY exists about the outcome of certain events, Events after the Reporting Period deal with situations of CERTAINTY. 3. If events that occour after the Fin Year End but BEFORE the Fin Stats are authorized for issue, Objective 1 The objective of this Standard is to prescribe: (a) when an entity should adjust its financial statements for events after the reporting period; and (b) the disclosures that an entity should give about the date when the financial statements were authorised for issue and about events after the reporting period. The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate. METHOD 1. Date of Issue: this IAS only applies before the date of issue of Fin Stats: Date of Issue means : when mngmnt or the NORMAL board of directors issue them to shareholders for approval, or issued to a supervisory board of solely non-executives for approval, or issues it officially, -so as soon as mngmnt or the NORMAL board of directors authorizes it for any sort of issue to anyone. BUT a public announcement of profit or other select info is NOT seen as an issue - you disregard that. 2. Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. Two types of events can be identified: 2.1. those that provide evidence of conditions (UNCERTAINTIES) that existed at the end of the reporting period (adjusting events after the reporting period); and 2.2. those that are indicative of conditions (ANY) that arose after the reporting period (non-adjusting events after the reporting period). 3. NON-ADJUSTING EVENTS :Events after the Fin Year End that refer to conditions that arise after the reporting period , and not to UNCERTAINTIES at the year End date ,require no accounting recognition, except for 2 cases 3.1. when the going concern concept no longer applies. See separate heading below for how to treat going concern. 3.2. If matter is material and will affect economic decisions of users, it should be included in the notes only.Just the 1- nature and 2- estimate of financial effect or statement such estimate not able to be made. 3.3. Example: decline in market value fin.instrument after reporting date, 4. ADJUSTING EVENTS : Events after Fin Year End that refer to conditions (read : UNCERTAINTIES) that existed at the end of reporting period (fin yr end) must be recognized only if there was a (shouldnt have been imaginary) UNCERTAINTY at the reporting date. 4.1. So if a debtor was in trouble before year end , and went bankrupt after year end , then it MUST be Disclosed. This is because there was UNCERTAINTY at year end about it.(possible bad debt or not?)- this is an adjusting avent so you MUST adjust something- here it would be provision for bad debts at the end of last period that must get adjusted now in last yrs before rhey are issued. 4.2. BUT if the same debtor was NOT in trouble at year end, and after year end went bankrupt due to a natural disaster it MUST NOT be disclosed (unless it affects going concern). This is because there was no UNCERTAINTY about it at year end- so the CONDITION that caused the trouble did not exist at year end yet. 4.3. The book is not clear about whether you explain the exact circumstances in the Notes to the Fin Stats in the case where there must be a change done/adjustment to the Fin Stats Assets, Liabilities, Expenses & Income in the Fin Stats, but for safety sake just disclose it in the notes under the heading Events after the Reporting Period in the same format and together with all the other events after the reporting period that DO affect and get shown somewhere in the fin stats
40 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. ie: eg : together with Non-Adjusting events that are material and must be disclosed in the notes etc etc. Put them ALL under the same heading. 4.3.1.Use the standard format prescribed for the Notes as per IAS 10 ie: 4.3.1.1.Nature of Event 4.3.1.2.Estimation of financial effect or statement that no estimation could be made. 4.4. Example: debtor bankrupt adjust prov.bad debts, court case payout make a provision, profit sharing payment worked out-book a liability,inventory sale after year end provides evidence of NRV etc,. 5. METHOD: 5.1. ADJUSTING EVENTS: note,when you do any adjustmnents for these eg bad debts, and NRV evidence 5.1.1.in the SFP : 5.1.1.1.decrease retained earnings by total loss PLUS tax deducted before that gets added back- (in effect total loss less tax) 5.1.1.2.decease taxation liability 5.1.1.3.decrease the TAX for the year by tax rate * *bad debts expense + invejntory loss on derecognition+ !!!! so both these must be adjusted!! As well as TAX 5.1.2. In SCI: 5.1.2.1.increase loss on derecognition of inventory that was burned- (like a loss on sale of asset) 5.1.2.2.it will increase the operating costs by the bad debts amount which you of course write in as a provision for bad debts, AND 5.1.2.3.decrease tax 6. THE ACCOUNTING TREATMENT : there are 3 alternatives : 6.1. Adjustment to Assets & Liabilities & Expenses & Income items : 6.2. No accounting recognition : if it does not qualify 6.3. Only include in the Notes. : 7. NOTES: 7.1. If the company DID NOT KNOW about the fact that a debtor was doing badly, but in fact he was in trouble at the date of Fin Stats., then it is Definitely a Condition that existed at the Fin Stat Date and MUST BE accounted for.- just because the company did not know does not matter-it just had to have actually existed at fin yr end date. 7.2. Dividends: Even if the directors proposed the dividend before the Fin Year End, subject to the AGM of shareholders approving it after the Fin Yr End , it is still treated as above ie: Not Disclosed, because there was no CLEAR OBLIGATION at Date of Fin Stats. 7.3. The book is not clear about whether you explain the exact circumstances in the Notes to the Fin Stats in the case where there must be a change done/adjustment to the Fin Stats Assets, Liabilities, Expenses & Income in the Fin Stats, but for safety sake just disclose it in the notes under the heading Events after the Reporting Period in the same format and together with all the other events after the reporting period that DO affect and get shown somewhere in the fin stats ie: eg : together with Non-Adjusting events that are material and must be disclosed in the notes etc etc. Put them ALL under the same heading. 7.3.1.Use the standard format prescribed for the Notes as per IAS 10 ie: 7.3.1.1.Nature of Event 7.3.1.2.Estimation of financial effect or statement that no estimation could be made. 7.4. 8. EXAMPLES OF ADJUSTING EVENTS : (per ias 10 vertabim) The following are examples of adjusting events after the reporting period that require an entity to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised: (a) the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period. The entity adjusts any previously recognised provision related to this court case in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets or recognises a new provision. The entity does not merely disclose a contingent liability because the settlement provides additional evidence that would be considered in accordance with paragraph 16 of IAS 37.
(b) the receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example: (i) the bankruptcy of a customer that occurs after the reporting period usually confirms that a loss existed at the end of the reporting period on a trade receivable and that the entity needs to adjust the carrying amount of the trade receivable; and (ii) the sale of inventories after the reporting period may give evidence about their net realisable value at the end of the reporting period. (c) the determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period. (d) the determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date (see IAS 19 Employee Benefits). (e) the discovery of fraud or errors that show that the financial statements are incorrect. 9. EXAMPLES OF NON-ADJUSTING EVENTS : 10. 10.1.1.ALL OF THESE ARE ONLY IF THEY HAPPEN AFTER YEAR END: 10.1.1.1.An example of a non-adjusting event after the reporting period is a decline in market value of investments between the end of the reporting period and the date when the financial statements are authorised for issue. 10.1.1.2. meaning if it is material and could affect users economic decisions then a Note should be included- see format of note in IAS 10 or below in disclosure. 10.1.1.3.Decline in the market value of property 10.1.1.4.Expropriation 10.1.1.5.Aquire dispose subsidiary 10.1.1.6.Issue debentures / shares 10.1.1.7.Classify assets as held for sale 10.1.1.8.New /expansion of trading activities 10.1.1.9.Foreign exchange rate change 10.1.1.10. Tax rate change 10.1.1.11. Strikes 10.1.1.12. Restructuring 10.1.1.13. Issuing major commitments eg guarantees 10.1.1.14. Litgation from events which COMMENCED SOLELY after year end. 10.1.1.15. Fire destruction 10.1.1.16. Share splits etc. DATE OF AUTHORISATION OF FIN. STATS. 1. The Date that is used is the date when the FULL BOARD authorizes the statements for issue. 2. This stays the same even if a supervisory board of non-executive directors still has to peruse the statements thereafter, or if the audit committee approved them before the main board, or if management ( eg fin. Director & some others) approved them before the full board.So none of these will count , only the full board itself. 3. The DATE of AUTHORISATION FOR ISSUE by the full board must be included in the NOTES of the fin stats , it is important to users to know up until when info. has been included in the fin stats. 4. ALSO If the entitys owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact. DIVIDENDS
42 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. 1. If dividends (SEE ias 32) are declared after the reporting period but before the financial statements are authorised for issue, the dividends ARE NOT RECOGNISED as a liability at the end of the reporting period because no obligation exists at that time. Such dividends are disclosed in the notes in accordance with IAS 1 Presentation of Financial Statements.\ 2. Even if the directors proposed the dividend before the Fin Year End, subject to the AGM of shareholders approving it after the Fin Yr End , it is still treated as above ie: Not Disclosed, because there was no CLEAR OBLIGATION at Date of Fin Stats. GOING CONCERN 1. 16 IAS 1 (And IAS 10. 14)specifies required disclosures if: 1.1. the financial statements are not prepared on a going concern basis; or 1.2. management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entitys ability to continue as a going concern. The events or conditions requiring disclosure may arise after the reporting period. 2. So even if events after the reporting period are not required to be disclosed, if they affect the going concern principle then they must be disclosed and the effect is so pervasive that this Standard requires a fundamental change in the basis of accounting, per IAS 10.15b , so it means a total reworking of the Fin Stats.. IAS 1 . 25 supposedly tells you how to change to a non-going concern method(I think it means disclosure in the notes, plus stuff like impairments and value of inventory At NRV where NRV must change to auction instead of sold in the shop. 3. Also if any events are MATERIAL enough to affect the economic decisions of users eg lightning strike after year end,then they MUST be included in the notes as follows : 3.1. Nature of event 3.2. Estimate of financial effect, or statement that estimate cannot be made.
DISCLOSURE: Disclosure: 1. EVENTS AFTER REPORTING PERIOD NOTE: (separate note in own heading number referenced to item in SCI/SFP etc it affects) a. Date authorized & who authorized issue of Fin Stats.: An entity shall disclose the date when the financial statements were authorized for issue and who gave that authorisation. And also disclose If the entitys owners or others have the power to amend the financial statements after issue for some reason (like law etc)(?? could this also probably go somewhere else in notes if there were no events to report that year so this sub-heading fell Away.??) b. Adjusting events just change amount or disclosure in the finstats and then (? ?I think for every change made disclose it in this sub-heading as well or not at all.???) eg provision bad debts changed etc. c. Non-Adjusting Events: just the 1-Nature 2-Amounts of each event. d. Non-Cash asset declared as a dividend AFTER end of reporting period: if a non-cash asset just the following 4: per IFRC 17: i. Nature of asset ii. Carrying amount of assets iii. Fair value if different to carrying amount iv. Method used to determine fair value.
45 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. IAS37 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES IAS37 , IFRIC 5, IFRIC6. SCOPE 1. Applies to all except: a. Except those resulting from executor contracts, unless the contract is onerous b. Those covered by another statement, eg c. leases, d. employee benefits e. construction contracts f. income taxes g. financial instruments 2. Provisions for doubtful debts has been changed to Allowance for credit losses and it IS NOT covered by IAS 37 because it not a provision in the true sense of the word but an ADJUSTMENT to an asset account. Furthermore the statement(I think IAS 37) only deals with the credit side of the entry and does not deal how the Dr side should be done- as an asset or as an expense.

ACCA 3 DIPAC Employee Benefits - Leases - Events After Reporting Period

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ACCA 3 DIPAC Employee Benefits - Leases - Events After Reporting Period

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1 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

EMPLOYEES BENEFITS IAS 19 , IFRIC 14 , AC504

SHORT TERM EMPLOYEE BENEFITS

R500 ( becomes a expense for this year matching principle) R500

POST EMPLOYMENT BENEFITS :

OTHER LONG TERM EMPLOYEE BENEFITS

PRESENTATION & DISCLOSURE see example GAAP pg 321.-final disclosure example.

LEASES IAS 17 ,IFRIC 4, SIC15, SIC27, CIRCULAR 1/2006&12/2006

operating lease's in financial records of lessee:

operating lease's in financial records of lessor:

FINANCE LEASES IN BOOKS OF LESSEE:

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