Employment Benefits: Other Long Term Benefits under IAS 19

Long term benefits

Other long-term employee benefits that could arise include long-term disability payments, anniversary payments or bonus payments which are payable greater than 12 months after the period end.

The treatment for these payments is similar to the defined benefit pension schemes, but the difference is that any actuarial gains or losses are recognised immediately.

The present value of the obligation at the end of the reporting period is compared to the fair value of the assets available to discharge the liability, any deficit should be recorded as a liability in the financial statements.

Any service costs, net interest and remeasurements should all be recognised in profit or loss unless another accounting standard requires a different treatment.

Termination benefits

When an employee has their employment terminated with a company, the company may be obliged by legislation or standard practice to make payments to that employee.

This can arise when:

  • The entity terminates employment before the normal retirement date, or
  • The employee takes voluntary redundancy to end their employment

Because termination payments provide no future benefits to the entity, they must be recognised as an expense immediately.

The expense should be recognised at the earlier of when:

  • The entity can no longer withdraw the offer of those benefits, or
  • The entity recognises the restructuring costs in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets.

If the entity is demonstrably committed to terminate an employee, but has yet to do so, they should recognise the termination payment as a liability in the statement of financial position.

Demonstrably committed means the entity has agreed to a detailed and formal plan that has no realistic possibility of withdrawal.

The journal entries required for the payment of these termination benefits will be:

DR Terminations Payments Expense (I/S) XX
CR   Terminations Payments Liability (SOFP) XX