FINANCIAL ACCOUNTING AND REPORTING

FAR23 Employee Benefits

23.1. Scope and Key Definitions ...................................................................................... 1

23.2. Short-term Employee Benefits ............................................................................. 3

23.3. Post-employment Benefits ..................................................................................... 4

23.4. Defined Contribution Plans .................................................................................... 5

23.5. Defined Benefit Plans................................................................................................ 5

23.6. Other Long-term Employee Benefits ................................................................. 7

23.7. Termination Benefits ................................................................................................ 7

FAR23 Employee Benefits
23.1. Scope and Key Definitions
• PAS 19R shall be applied by an employer in accounting for all employee benefits, except those to which
PFRS 2 applies. This Standard does not deal with reporting by employee benefit plans (see PAS 26
Accounting and Reporting by Retirement Benefit Plans).
• The employee benefits to which this Standard applies include those provided:
a. under formal plans or other formal agreements between an entity and individual employees,
groups of employees or their representatives;
b. under legislative requirements, or through industry arrangements, whereby entities are required
to contribute to national, state, industry or other multi-employer plans; or
c. by those informal practices that give rise to a constructive obligation. Informal practices give rise to
a constructive obligation where the entity has no realistic alternative but to pay employee benefits. An
example of a constructive obligation is where a change in the entity's informal practices would cause
unacceptable damage to its relationship with employees.
• Employee benefits are all forms of consideration given by an entity in exchange for service rendered by
employees or for the termination of employment. These include:
Definition Examples

• wages, salaries and social

security contributions;
Employee benefits (other than
• paid annual leave and paid
termination benefits) that are
sick leave;
expected to be settled wholly
Short-term employee • profit-sharing and bonuses
before twelve months after the
benefits • non-monetary benefits (such
end of the annual reporting
as medical care, housing, cars
period in which the employees
and free or subsidized goods
render the related service
or services) for current
employees

• retirement benefits (e.g.

pensions and lump sum
Employee benefits (other than
payments on retirement)
termination benefits and short-
• other post-employment
Post-employment benefits term employee benefits) that are
benefits, such as post-
payable after the completion of
employment life insurance
employment.
and post-employment medical
care

• long-term paid absences such

All employee benefits other than as long-service leave or
Other long-term employee short-term employee benefits, sabbatical leave;
benefits post-employment benefits and • jubilee or other long-service
termination benefits. benefits;
• long-term disability benefits

Employee benefits provided in

exchange for the termination of
an employee's employment as a
result of either:
a. an entity's decision to
Termination benefits terminate an employee's
employment before the
normal retirement date;
b. an employee's decision to
accept an offer of benefits in
exchange for the
termination of employment.

• Employee benefits include benefits provided either to employees or to their dependents or

beneficiaries and may be settled by payments (or the provision of goods or services) made either directly
to the employees, to their spouses, children or other dependents or to others, such as insurance companies.
• An employee may provide services to an entity on a full-time, part-time, permanent, casual or temporary
basis. For the purpose of this Standard, employees include directors and other management personnel.

FAR23 EMPLOYEE BENEFITS 1

 • The following are the key definitions in PAS 19R:
Classification of plans

Post-employment benefit formal or informal arrangements under which an entity provides post-
plans employment benefits for one or more employees.

post-employment benefit plans under which an entity pays fixed

contributions into a separate entity (a fund) and will have no legal or
Defined contribution plans constructive obligation to pay further contributions if the fund does not
hold sufficient assets to pay all employee benefits relating to employee
service in the current and prior periods.

Defined benefit plans post-employment benefit plans other than defined contribution plans.

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
Multi-employer plans
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.

Net defined benefit liability (asset)

Net defined benefit liability the deficit or surplus, adjusted for any effect of limiting a net defined
(asset) benefit asset to the asset ceiling.

the present value of the defined benefit obligation less the fair value of
Deficit or surplus
plan assets (if any).

the present value of any economic benefits available in the form of

Asset ceiling
refunds from the plan or reductions in future contributions to the plan.

the present value, without deducting any plan assets, of expected

Present value of a defined
future payments required to settle the obligation resulting from
benefit obligation
employee service in the current and prior periods.

comprise assets held by a long-term employee benefit fund; and

Plan assets
qualifying insurance policies.

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
Assets held by a long-term not available to the reporting entity's own creditors (even in
employee benefit fund 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.

an insurance policy issued by an insurer that is not a related party of

Qualifying insurance policy 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

FAR23 EMPLOYEE BENEFITS 2

 b. are not available to the reporting entity's 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.

Defined benefit cost

comprises:
a. current service cost, which is the increase in the present value of
the defined benefit obligation resulting from employee service in
the current period;
b. past service cost, which is the change in the present value of the
Service cost defined benefit obligation for employee service in prior periods,
resulting from a plan amendment (the introduction or withdrawal
of, or changes to, a defined benefit plan) or a curtailment (a
significant reduction by the entity in the number of employees
covered by a plan); and
c. any gain or loss on settlement

Net interest on the net

the change during the period in the net defined benefit liability (asset)
defined benefit liability
that arises from the passage of time.
(asset)

comprise:
a. actuarial gains and losses;
Remeasurements of the net
b. the return on plan assets, excluding amounts included in net
defined benefit liability
interest on the net defined benefit liability (asset); and
(asset)
c. any change in the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit liability (asset).

changes in the present value of the defined benefit obligation resulting

from:
a. experience adjustments (the effects of differences between the
Actuarial gains and losses
previous actuarial assumptions and what has actually occurred);
and
b. the effects of changes in actuarial assumptions

interest, dividends and other income derived from the plan assets,
together with realized and unrealized gains or losses on the plan assets,
Return on plan assets less any costs of managing plan assets and any tax payable by the plan
itself, other than tax included in the actuarial assumptions used to
measure the present value of the defined benefit obligation.

a transaction that eliminates all further legal or constructive

obligations for part or all of the benefits provided under a defined
Settlement benefit plan, other than a payment of benefits to, or on behalf of,
employees that is set out in the terms of the plan and included in the
actuarial assumptions.

23.2. Short-term Employee Benefits

When an employee has rendered service to an entity during an accounting period,
the entity shall recognize the undiscounted amount of short-term employee
benefits expected to be paid in exchange for that service:
Recognition and
a. as a liability (accrued expense), after deducting any amount already paid. If
Measurement
the amount already paid exceeds the undiscounted amount of the benefits, an
entity shall recognize 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.

FAR23 EMPLOYEE BENEFITS 3

 b. as an expense, unless another PFRS requires or permits the inclusion of the
benefits in the cost of an asset (see, for example, PAS 2 and PAS 16).

An entity shall recognize the expected cost of short-term employee benefits in the
form of paid absences as follows:
a. in the case of accumulating paid absences, when the employees render
service that increases their entitlement to future paid absences. An entity shall
Paid absences
measure the expected cost of accumulating paid absences as the additional
amount that the entity expects to pay as a result of the unused entitlement that
has accumulated at the end of the reporting period.
b. in the case of non-accumulating paid absences, when the absences occur.

An entity shall recognize the expected cost of profit-sharing and bonus payments
when, and only when:
Profit-sharing and a. the entity has a present legal or constructive obligation to make such payments
bonus payments as a result of past events (a present obligation exists when, and only when, the
entity has no realistic alternative but to make the payments); and
b. a reliable estimate of the obligation can be made.

Although PAS 19R does not require specific disclosures about short-term employee
benefits, other PFRSs may require disclosures. For example, PAS 24 requires
Disclosure
disclosures about employee benefits for key management personnel. PAS 1 requires
disclosure of employee benefits expense.

Case Study 1
Z Co. grants its employees twelve days paid vacation leave each year. Per Z’s policy, employees are required to take
vacation leave each year, but not necessarily for their entire vacation leave entitlement. Vacation leaves not taken
during a year can be carried over indefinitely.

Z has 500 employees with an average salary of Php1,000 per day. The average annual pay increase is 5%. During 2019,
total vacation leaves taken by employees were 5,400 days. Based on past experience, 90% of unused vacation leave for
a year are taken in the immediately following year.

Required
a. Assume that unused vacation leaves vest, how much should X accrue as liability for unused vacation leave on
December 31, 2019?
b. Assume that unused vacation leaves do not vest, how much should X accrue as liability for unused vacation
leave on December 31, 2019?

23.3. Post-employment Benefits

Post-employment benefit plans are classified as either defined contribution
Classification plans or defined benefit plans, depending on the economic substance of the plan
as derived from its principal terms and conditions

The entity’s legal or constructive obligation is limited to the amount that it

agrees to contribute to the fund. Thus, the amount of the post-employment
benefits received by the employee is determined by the amount of contributions
Defined contribution paid by an entity (and perhaps also the employee) to a post-employment benefit
plans plan or to an insurance company, together with investment returns arising from the
contributions. In consequence, actuarial risk (that benefits will be less than
expected) and investment risk (that assets invested will be insufficient to meet
expected benefits) fall, in substance, on the employee.

The entity’s obligation is to provide the agreed benefits to current and former
employees; and actuarial risk (that benefits will cost more than expected) and
Defined benefit plans
investment risk fall, in substance, on the entity. If actuarial or investment
experience are worse than expected, the entity’s obligation may be increased.

FAR23 EMPLOYEE BENEFITS 4

 Case Study 2
For each of the following independent situations, determine whether the post-employment benefit plan described is a
defined contribution plan or a defined benefit plan applying the concepts you learned from PAS 19 (Revised).

A. According to the pension plan of an entity, the employees and entity contribute 5% of the employee’s salary
to the plan, and the employee is guaranteed a return of the contributions plus 3% a year by the employer.

B. An entity has created a voluntary fund to provide retirement benefits for its employees who have more than
seven years service and have a permanent contract with the entity. The entity has a history of paying benefits
to its employees, which are adjusted for inflation. The entity has signed a contract with a pension fund to
establish a fund for the employees. Contributions are paid by the entity and if the fund does not have enough
assets to pay the pensions, the entity increases its contributions.

C. An entity contributes to an industrial pension plan that provides a pension arrangement for its employees. A
large number of other employers also contribute to the pension plan, and the entity makes contributions in
respect of each employee. These contributions are kept separate from corporate assets and are used together
with any investment income to purchase annuities for retired employees. The only obligation of the entity is
to pay the annual contributions.

23.4. Defined Contribution Plans

Straightforward because the reporting entity’s obligation for each period is
Accounting
determined by the amounts to be contributed for that period.

When an employee has rendered service to an entity during a period, the entity shall
recognize the contribution payable to a defined contribution plan in exchange for
that service:
a. as a liability (accrued expense), after deducting any contribution already
paid. If the contribution already paid exceeds the contribution due for service
Recognition
before the end of the reporting period, an entity shall recognize 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.
b. as an expense, unless another PFRS requires or permits the inclusion of the
contribution in the cost of an asset (see, for example, PAS 2 and PAS 16).

When contributions to a defined contribution plan are not expected to be settled

wholly before twelve months after the end of the annual reporting period in which
Discounting
the employees render the related service, they shall be discounted using the
discount rate.

An entity shall disclose the amount recognized as an expense for defined

Disclosure contribution plans. Where required by IAS 24 an entity discloses information about
contributions to defined contribution plans for key management personnel.

23.5. Defined Benefit Plans

Complex because actuarial assumptions are required to measure the obligation and
Accounting
the expense and there is a possibility of actuarial gains and losses.

STEP 1: Determine the deficit or surplus

a. Using an actuarial technique, the projected unit credit method, to make a
reliable estimate of the ultimate cost to the entity of the 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
Measurement
and prior periods 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 affect the cost of the benefit.
b. discounting that benefit in order to determine the present value of the defined
benefit obligation and the current service cost.

FAR23 EMPLOYEE BENEFITS 5

 c. deducting the fair value of any plan assets from the present value of the defined
benefit obligation.

STEP 2: Determine the amount of net defined benefit liability (asset)

The amount of the deficit or surplus determined in STEP 1, adjusted for any effect
of limiting a net defined benefit asset to the asset ceiling.

STEP 3: Determine amounts to be recognized in profit or loss

a. Service cost:
Current service cost
Past service cost
Any gain or loss on settlement
b. Net interest on the net defined benefit liability (asset):
Interest cost on the defined benefit obligation
Interest income on plan assets
Interest cost on asset ceiling effect

STEP 4: Determine amounts to be recognized in other comprehensive income

c. Remeasurements of the net defined benefit liability (asset)
Actuarial gains and losses
Return on plan assets (excluding interest income)
Asset ceiling effect changes (excluding interest cost)

a. An entity shall recognize the net defined benefit liability (asset) in the
statement of financial position.
b. When an entity has a surplus in a defined benefit plan, it shall measure the net
Presentation
defined benefit asset at the lower of:
i. the surplus in the defined benefit plan; and
ii. the asset ceiling, determined using the discount rate

Case Study 3
Information on X Co.’s defined benefit plan is shown below.
Fair value of plan assets, 1/1/2019 P700,000
Present value of defined benefit obligation, 1/1/2019 550,000
Current service cost 240,000
Past service cost, 6/1/2019 (average vesting period is 5 years) 150,000
Benefits paid 105,000
Return on plan assets 150,000
Contribution to the plan 455,000
Increase in obligation during the year due to changes in actuarial assumptions 60,000
Expected rate of return 12%
Discount rate used to discount the defined benefit obligation 10%

The present values of economic benefits available in the form of refunds from the plan are P100,000 and P200,000 on
January 1 and December 31, respectively.

Required
a. How much is the net defined benefit liability (asset) as of January 1, 2019?
b. How much is the net defined benefit liability (asset) as of December 31, 2019?
c. How much is the defined benefit cost to be recognized in profit or loss?
d. How much is the defined benefit cost to be recognized in other comprehensive income?
e. What are the journal entries required to be prepared on December 31, 2019?

FAR23 EMPLOYEE BENEFITS 6

 Case Study 4
Information on Y Co.’s defined benefit plan is shown below:
 The fair value of the plan assets on January 1, 2019 was P1,800,000.
 The actuarial valuation of the defined benefit obligation on January 1, 2019 was P2,000,000. The actuarial
present value of future benefits earned by employees for services rendered in 2019 amounted to P300,000.
 On July 1, 2019, Y Co. amended its retirement plan. The amendment increased the present value of the defined
benefit obligation by P400,000, 20% of which relates to benefits that have already vested. The remaining
portion will vest in 5 years.
 Changes in actuarial assumptions resulted to a decrease of P160,000 in the present value of the defined benefit
obligation. It was also determined that there was a P20,000 decrease in the fair value of the plan assets due to
changes in the fair values.
 The return on plan assets amounting to P280,000 represents only the actual interest and other investment
income in 2019.
 Benefits paid during 2019 amounted to P50,000. No contributions were made to the fund during 2019.
 The discount rate is 9%.

Required
a. How much is the net defined benefit liability (asset) as of January 1, 2019?
b. How much is the net defined benefit liability (asset) as of December 31, 2019?
c. How much is the defined benefit cost to be recognized in profit or loss?
d. How much is the defined benefit cost to be recognized in other comprehensive income?
e. What are the journal entries required to be prepared on December 31, 2019?

23.6. Other Long-term Employee Benefits

In recognizing and measuring the surplus or deficit in an other long-term employee
benefit plan, an entity shall apply the same concept used in defined benefit plans.

For other long-term employee benefits, an entity shall recognize the net total of the
following amounts in profit or loss, except to the extent that another PFRS requires
Measurement or permits their inclusion in the cost of an asset:
a. service cost; 

b. net interest on the net defined benefit liability (asset); and 

c. remeasurements of the net defined benefit liability (asset)

 


When, and only when, it is virtually certain that another party will reimburse some
or all of the expenditure required to settle a defined benefit obligation, an entity
shall:
a. recognize its right to reimbursement as a separate asset. The entity shall
Reimbursement measure the asset at fair value. 

right b. disaggregate and recognize changes in the fair value of its right to
reimbursement in the same way as for changes in the fair value of plan assets.
The components of defined benefit cost recognized in accordance with may be
recognized net of amounts relating to changes in the carrying amount of the
right to reimbursement.

Although this Standard does not require specific disclosures about other long-term
employee benefits, other PFRSs may require disclosures. For example, PAS 24
Disclosure
requires disclosures about employee benefits for key management personnel. PAS
1 requires disclosure of employee benefits expense.

23.7. Termination Benefits

The following are not termination benefits, rather, they are post-employment
benefits:
Exclusions a. termination of employment at the request of the employee without an entity’s
offer
b. as a result of mandatory retirement requirements

Recognition An entity shall recognize a liability and expense for termination benefits at the
earlier of the following dates:

FAR23 EMPLOYEE BENEFITS 7

 a. when the entity can no longer withdraw the offer of those benefits; and
b. when the entity recognizes costs for a restructuring that is within the scope of
PAS 37 and involves the payment of termination benefits.

If the termination benefits are an enhancement to post-employment benefits, the

entity shall apply the requirements for post-employment benefits.

If the termination benefits are expected to be settled wholly before twelve months
after the end of the annual reporting period in which the termination benefit is
Measurement recognized, the entity shall apply the requirements for short-term employee
benefits.

If the termination benefits are not expected to be settled wholly before twelve
months after the end of the annual reporting period, the entity shall apply the
requirements for other long-term employee benefits.

Although this Standard does not require specific disclosures about termination
benefits, other PFRSs may require disclosures. For example, PAS 24 requires
Disclosure
disclosures about employee benefits for key management personnel. PAS 1 requires
disclosure of employee benefits expense.

Quizzer – Problem 1
1. On January 2, 2019, Power Company provides for a lump-sum benefit payable upon termination of service that is
equal to 10% of final salary for each year of service. The salary in 2019 is P400,000 and is assumed to increase at
5% compounded each year. The discount rate to be used is 10% per annum. Power Company believes that the
employee will not leave the company before the expected retirement date of December 31, 2022. Also, Power
Company believes that there are no changes in actuarial assumptions in future years. Power Company does not
fund its obligation to pay lump-sum benefits and recognizes actuarial gains and losses in other comprehensive
income.

Question 1: What is the present value of current service cost for the year 2021?
A. P34,789
B. P38,268
C. P42,095
D. P46,305

Question 2: What is the present value of the defined benefit obligation as of December 31, 2021?
A. P34,789
B. P76,536
C. P126,285
D. P185,220

2. On January 2, 2019, Newton Company amended its pension to increase pension from 5% of final salary to 8% of
final salary for every year of credited service. The additional benefits are as follows: Present value of additional
benefits for employee service before year 2019:
Vested benefits P6,800,000
Non-vested benefits 4,080,000
Estimated average period until non-vested benefits would become vested is four years. What amount of past service
cost should be included in the current year defined benefit costs?
A. None C. P7,820,000
B. P6,800,000 D. P10,880,000

3. Undaunted Company has established a defined benefit plan for its employees. Annual payments under the plan are
equal to highest lifetime salary multiplied by 2% multiplied by the number of years with the entity. On December
31, 2019, an employee had worked with the entity for 15 years. The current annual salary of the employee is
P600,000. The employee is expected to retire in 10 years and the increase in salary is expected to be 4% per year.
The employee is expected to live 8 years after retirement and shall receive the first annual pension payment one
year after retirement. The discount rate is 10%. The relevant present value and future value factors are:
Future value of 1 at 4% for 10 periods 1.480
PV of an ordinary annuity of 1 at 10% for 8 periods 5.335
PV of 1 at 10% for 10 periods 0.386

What is the projected benefit obligation on December 31, 2019?

A. P266,400
B. P548,600
C. P180,000
D. P370,675
FAR23 EMPLOYEE BENEFITS 8
4. The following are made available for the defined benefit pension plan of Portugal Company as of December 31,
2019:
Fair value of plant asset, January 1, 2019 P2,000,000
Total actual return on plan asset:
Interest income – actual P200,000
Gain on remeasurement 100,000 300,000
Tax rate on defined benefit 15%
Expected rate of return on the asset 7%
Discount rate 6%
Contribution during the year 500,000

Question 1: What is the fair value of the plan asset as of December 31, 2019?
A. P2,140,000
B. P2,755,000
C. P2,770,000
D. P2,800,000

Question 2: What amount of total actual return on the plan asset should be included in profit or loss?
A. P120,000
B. P135,000
C. P200,000
D. P300,000

Question 3: What amount of the total actual return on the plan asset should be reported in other comprehensive
income?
A. P120,000
B. P135,000
C. P200,000
D. P300,000

5. The following data relate to the defined benefit plan of Bronson Company for the year ended December 31, 2019:
Present value of defined benefit obligation, January 1, 2019 P15,000,000
Current service cost 800,000
Benefits paid during the year 1,500,000
Discount rate 6%
Present value of benefit obligation, December 31, 2019 17,410,000

Ignore income tax, what amount of remeasurement gain or loss that should be included in the other comprehensive
income?
A. None
B. P900,000
C. P1,700,000
D. P2,210,000

6. The following information is made available involving the defined benefit pension plan of Knowledge Company for
the year 2019:
Fair value of plan asset, 1/1/19 P3,500,000
Present value of benefit obligation, 1/1/19 3,750,000
Current service cost 700,000
Actual return on plan asset 420,000
Contribution to the plan 600,000
Benefits paid to retirees 750,000
Decrease in the present value of benefit obligation due to changes in actuarial assumption 100,000
Present value of defined benefit obligation settled 250,000
Settlement price of defined benefit obligation 200,000
Discount rate 10%

Question 1: What amount of employee benefit cost should be reported in the profit or loss?
A. P675,000
B. P725,000
C. P1,025,000
D. P1,075,000

Question 2: What is the net amount of remeasurements for the year 2019?
A. P50,000
B. P75,000
C. P100,000
D. P170,000

FAR23 EMPLOYEE BENEFITS 2

 Question 3: What is the fair value of the plan asset as of December 31, 2019?
A. P3,500,000
B. P3,570,000
C. P3,770,000
D. P4,100,000

Question 4: What is the present value of benefit obligation as of December 31, 2019?
A. P3,725,000
B. P3,825,000
C. P3,975,000
D. P4,825,000

Question 5: What is the balance of the prepaid or accrued pension as of December 31, 2019?
A. Prepaid pension P155,000
B. Accrued pension P155,000
C. Prepaid pension P325,000
D. Accrued pension P325,000

7. The following data relate to the defined benefit plan of Bronson Company for the year ended December 31, 2019:
Present value of defined benefit obligation, January 1, 2019 P15,000,000
Fair value of plan asset, January 1, 2019 14,000,000
Contribution during the year 1,050,000
Current service cost 800,000
Benefits paid during the year 1,500,000
Present value of defined benefit obligation, December 31, 2019 17,410,000
Fair value of plan asset, December 31, 2019 14,920,000
Discount rate 6%
Expected rate of return 7%

What amount of net remeasurement gain and loss should be reported in the other comprehensive income?
A. P530,000
B. P840,000
C. P1,680,000
D. P2,210,000

8. The following information is made available in relation to the defined benefit pension plan of Roadworthy Company
for the year 2019:
January 1 December 31
Fair value of plan assets P5,200,000 P6,000,000
Present value of defined benefit obligation 4,000,000 4,200,000
Surplus P1,200,000 P1,800,000
Asset ceiling 400,000 600,000
Effect of the ceiling P800,000 P1,200,000

The following data are provided for the current year 2019:
Current service cost P200,000
Contributions to the plan 700,000
Benefits paid 300,000
Discount rate 10%

Question 1: What is the amount of employee benefits that should be reported in the profit or loss?
A. P80,000
B. P160,000
C. P200,000
D. P400,000

Question 2: What is the remeasurement loss related to the change in the effect of the asset ceiling?
A. P200,000
B. P320,000
C. P400,000
D. P1,200,000

Question 3: What is the net remeasurement loss to be reported as a component of other comprehensive income?
A. P220,000
B. P340,000
C. P440,000
D. P540,000

FAR23 EMPLOYEE BENEFITS 3

Quizzer – Theory 1
1. These are all forms of consideration given by n entity in exchange for services rendered by employees.
A. Employee benefits C. Fringe benefits
B. Employee compensation D. Salaries and wages

2. Short-term employee benefits include all of the following, except

A. Wages, salaries and social security contributions.
B. Short-term compensated absences
C. Profit-sharing and bonuses payable in more than twelve months after the end of the period in which the
employees render the related service.
D. Nonmonetary benefits for current employees, such as medical care, housing, car and free and subsidized goods.

3. Which of the following is not a characteristic of short-term employee benefits?

A. No actuarial assumptions are required to measure the benefit obligation.
B. There is no possibility of any actuarial gain or loss.
C. They are payable no later than twelve months after the end of the reporting period.
D. They are measured on a discounted basis.

4. These are compensated absences that are carried forward and can be used in future periods and the employees are
entitled to a cash payment for unused entitlement on leaving the entity.
A. Accumulating and vesting C. Nonaccumulating and vesting
B. Accumulating and nonvesting D. Nonaccumulating and nonvesting

5. Which of the following criteria is not required for the recognition of a liability for compensated absences?
A. The amount of the obligation must be estimable.
B. Payment of the obligation must be probable.
C. Payment of the obligation will require the use of current assets.
D. The compensation either vests with the employee or can be carried forward to subsequent years.

6. Employees are each entitled to 20 days of paid holiday leave per year. Unused holiday leave cannot be carried
forward and does not vest. The holiday leave is
A. Short-term employee benefit C. Other long-term employee benefit
B. Postemployment benefit D. Termination benefit

7. A profit-sharing plan that requires an entity to pay a specified proportion of the cumulative profit for a 5-year
period to employees who serve throughout the 5-year period is
A. Short-term employee benefit C. Postemployment benefit
B. Other long-term employee benefit D. Termination benefit

8. These are employee benefits which are payable after completion of employment.
A. Short-term employee benefits C. Postemployment employee benefits
B. Other long-term employee benefits D. Termination benefits

9. It is a benefit plan under which an entity pays a fixed contribution into a separate entity (fund) and will have no
legal or constructive obligation to pay further contribution if the fund becomes insufficient to pay employee benefits.
A. Postemployment benefit plan C. Defined benefit plan
B. Defined contribution plan D. Multi-employer plan

10. A multiemployer plan is defined as

A. A defined contribution plan or a defined benefit plan.
B. A defined contribution plan that pools the assets contributed by various entities.
C. A defined benefit plan that provides benefits to employees of more than one entity.
D. A defined contribution plan or defined benefit plan that pools the assets contributed by various entities that
are not under common control and uses those assets to provide benefits to employees of more than one entity.

11. These are assets held by an entity, the fund itself, that is legally separate from the reporting entity and exists solely
to pay or fund employee benefits.
A. Plan assets C. Retirement fund
B. Trust fund D. Pension assets

12. Plan assets comprise

A. Assets held by a long-term benefit fund only
B. Qualifying insurance policies only
C. Both assets held by a long-term benefit fund and qualifying insurance policies
D. Neither assets held by a long-term benefit fund nor qualifying insurance policy

13. It is an insurance policy issued by an insurer that is not a related party of the reporting entity and the proceeds of
the policy can be used only to pay or fund employee benefits.
A. Qualifying insurance policy C. Annuity
B. Aggregate policy D. Unconditional insurance policy

FAR23 EMPLOYEE BENEFITS 4

14. What is the actuarial valuation method mandated for measuring defined benefit liability?
A. Projected unit credit method C. Aggregate method
B. Accrued valuation method D. Individual premium method

15. The following components of pension expense shall be recognized immediately in the profit or loss, except
A. Past service cost
B. Remeasurements
C. Current service cost
D. Net interest on the net defined benefit liability (asset)

16. The service cost of a defined benefit cost include all of the following, except
A. Current service cost C. Gain or loss on plan settlement
B. Past service cost D. Net interest

17. What is the meaning of net interest in relation to a defined benefit cost?
A. Interest expense on defined benefit liability
B. Interest income on the fair value of plan assets
C. The difference between interest expense on defined benefit liability and interest income on the fair value of
plan assets
D. Interest expense on defined benefit liability less applicable income tax

18. This is defined as the best estimate of the variables that would determine the ultimate cost of providing
postemployment benefits.
A. Actuarial assumptions C. Financial assumptions
B. Demographic assumptions D. Actuarial computations

19. Which of the following statements is incorrect concerning actuarial assumptions?

A. Actuarial assumptions shall be unbiased and mutually compatible.
B. Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative.
C. Actuarial assumptions comprise of demographic assumptions and financial assumptions.
D. Postemployment benefit obligations shall be measured on a basis that reflects current salary and ignores future
salary.

20. Demographic actuarial assumptions include all of the following, except

A. Rate of employment turnover
B. Disability and early retirement
C. The proportion of plan members eligible for benefits
D. Discount rate

21. Financial actuarial assumptions include all of the following, except

A. Future salary
B. Future medical cost
C. Tax payable by the plan
D. Claim rate under medical plan

22. Termination benefits are employee benefits payable as a result of

I. An entity's decision to terminate an employee's employment before the normal retirement
II. An employee's decision to accept voluntary redundancy in exchange for those benefits.
A. I only C. Both I and II
B. II only D. Neither I nor II

23. Which of the following statements is incorrect in relation to termination benefit?

A. The event that gives rise to an obligation for termination benefit is the termination of employment.
B. A benefit that is in any way dependent on providing service in the future is a termination benefit.
C. A benefit resulting from termination of employment at the request of an employee without an entity offer is
not a termination benefit.
D. A benefit resulting from mandatory retirement is a postemployment benefit rather than a termination benefit.

24. These are employee benefits that are not conditional on future employment.
A. Vested C. Contingent
B. Unvested D. Absolute

25. Any transition loss on first adopting PAS 19 shall be recognized

A. Immediately
B. Immediately or over a maximum period of 5 years irrevocably
C. Immediately or over a maximum period of 5 years revocably
D. In other comprehensive income

FAR23 EMPLOYEE BENEFITS 2