Deck 13: Accounting for Employee Benefits

Question 1

In Australia,the attractiveness of salary packaging is being reduced by which of the following factors?

A) Fringe benefits tax which taxes the employer on non-cash benefits paid to the employee
B) The decreasing difference between personal tax rates and the company tax rate
C) Non-cash salary being taxable in the hands of the employee
D) All of the above

Answer 1

D

Question 2

Which of the following is excluded from the scope of post-employment benefit considered by AASB 119?

A) Superannuation
B) Termination benefits
C) Administrative support
D) Free travel

Answer 2

B

Question 3

AASB 119 specifies that the present value basis of measurement of liabilities arising from employee benefits must be applied to which of the following?

A) Short term employee benefits
B) Long term employee benefits
C) Long service leave only
D) All employee benefits

Answer 3

B

Question 4

There are two types of risk associated with post-employment benefits,investment risk and actuarial risk.Explain these terms and describe the situations when these risks are borne by the employee and when they are borne by the employer (in accordance with AASB 119).

Question 5

Gassy Pty Ltd pays Andy $80 000 per annum in cash,plus a car that cost $50 000 a year.The company income tax rate is 30% and the average personal income tax rate is 45%.There are no other taxes (ignore Fringe Benefits Tax for the purposes of this calculation).Personal income tax is not paid on non-cash benefits.The after-tax cost of employing Andy for the year and the after-tax benefits received by Andy are,respectively:

A) $80 000; $71 500
B) $28 000; $71 500
C) $80 000; $94 000
D) None of the above

Question 6

Leopard Ltd has a defined benefit superannuation plan where the present value of the accrued benefits on 1 January 20X6 was $850 000 and on 31 December 20X6 was $910 000.During 20X6 Leopard Ltd paid $80 000 to the plan.On 1 January 20X6 the net market value of the plans assets was $365 000 and on 31 December 20X6 was $468 000.Under the net-worth method the superannuation expense for the year ended 31 December 20X6 to be shown in Leopard's accounts is:

A) $80 000
B) $60 000
C) $37 000
D) $53 000

Question 7

Slater is entitled to 4 weeks annual leave a year and has four weeks leave,to the value of $20 000,accrued at the end of his first year of employment.On the first day of his second year of service Slater is given a pay rise to bring his salary up to $300 000 per annum.After the pay rise,Slater's annual leave payable must be adjusted by:

A) $50 000
B) $3077
C) $23 077
D) No adjustment is necessary

Question 8

While on a salary of $150 000,C.Cronk retired from Footballers R US after 35 years of service.He was entitled to 13 weeks accrued long service leave for every 15 years of service.How much long service leave pay was he entitled to on his retirement? He had not previously taken any long service leave.

A) $87 499
B) $75 000
C) $37 500
D) None of the above

Question 9

Wendell is employed at a salary of $150 000 per annum,paid in cash,the company income tax rate is 30%,and the average personal income tax rate is 42%.There are no other taxes.The after-tax cost of employing Wendell for the year and the after-tax benefit received by Andy are,respectively:

A) $105 000; $63 000
B) $105 000; $87 000
C) $87 000; $63 000
D) None of the above

Question 10

Under AASB 119,the liability for annual leave is calculated at:

A) the present value of the estimated future cash outflows to be made in respect of the leave
B) the current pay rate
C) the anticipated pay rate when the leave is expected to be taken
D) none of the above

Question 11

There are two approaches to accounting for post-employment benefit costs by employers:

A) the normal and special methods
B) the deferred debit and the deferred credit method
C) the defined benefit method and the defined contribution method
D) the form method and the net-worth method

Question 12

A liability or an expense for termination benefits can only arise when the entity is demonstrably committed to provide the benefits.Which of the following is listed in AASB 119 as part of the requirements of a detailed formal plan for termination that determines the meaning of 'demonstrably committed'?

A) Identification of when the termination will occur
B) Identification of termination benefits for each job classification or function
C) Identification of the location, function and approximate number of employees whose services will be terminated
D) All of the above

Question 13

Sick leave entitlements should be reflected as a liability in accordance with AASB 119 when:

A) it is non-accumulating sick leave
B) it is accumulating sick leave which is vesting
C) it is accumulating sick leave which is non-vesting
D) never

Question 14

The method of accounting for superannuation costs based on the assumption that the trust that manages the superannuation plan is a separate legal entity to the employer and is responsible for the fund's obligations is:

A) the form method
B) the legal entity method
C) the net-worth method
D) none of the above

Question 15

Which of the following is not a true statement concerning the accounting for superannuation costs by employers under a defined benefits plan?

A) The intention of the employer is to ensure that the plan can meet its agreed benefits as they fall due
B) When an employee is paid under the superannuation plan, the payment is treated as an expense
C) The performance of the plan has a direct effect on the statement of financial position of the employer
D) All are true statements

Question 16

Under AASB 119,non-monetary benefits paid to employees are measured by the employer at:

A) the replacement cost of the benefit
B) the net marginal cost to the employer
C) the market cost of the benefit
D) none of the above

Question 17

A past service cost arises when:

A) an employee is terminated and the employer must provide compensation for the past service of the employee
B) a defined benefits post-employment plan is established or when the plan's benefits are increased
C) a defined contributions post-employment plan is established or when the plan's benefits are increased
D) a new employee commences employment

Question 18

Which of the following methods for the recognition of actuarial gains and losses are acceptable under AASB 119?
I) Immediate recognition of all actuarial gains or losses through profit or loss
Ii) Recognition of all actuarial gains or losses outside profit or loss
Iii) The corridor approach

A) i
B) i and ii
C) ii and iii
D) i, ii and iii

Question 19

Under AASB 119,the recognition criteria for liabilities for profit sharing and bonus plans is:

A) It is probable the liability will be settled and the amount of the liability can be measured consistently
B) It is reasonably certain the liability will be settled
C) It is probable the liability will be settled
D) The entity has a present legal or constructive obligation to settle the liability, and the amount of the liability is capable of being measured reliably

Question 20

The discount rate to be used when estimating future cash outflows relating to an employee benefit that is expected to be paid out in 20 years by a Sydney company should be restricted to:

A) the current yield on 20 year Australian Government Bonds
B) the current yield on high quality bonds
C) no estimation of future cash outflows is required
D) none of the above

Question 21

The superannuation trust fund is a separate entity which manages the fund's assets and is responsible for the fund's obligations.The employer's only assets and liabilities are related to the accrual or deferral of the payments due to the superannuation plan.
Discuss whether you agree or disagree with the above approach to accounting for superannuation costs by employers.

Question 22

Discuss the rationale for AASB 119 recognising long service leave as a liability during the preconditional period.How would you account for the possibility that an employee may not remain in your employ long enough to collect long service leave.

Question 23

Discuss the measurement issues associated with accounting for short-term and long-term employee benefits.