Termination benefits

Learning objectives

• Determine the date on which termination benefits are recognised from the facts of a case.L2
• Calculate the amount to be recognised, discounted if settlement extends beyond twelve months, from the data of a case.L2

Normative references

• IAS 19 §8Definitions: categories of benefits (short-term, i.e. expected to be settled wholly before twelve months after the end of the annual reporting period in which the service is rendered; post-employment; other long-term; termination benefits); defined contribution plan (fixed contributions paid into a separate entity, with no legal or constructive obligation to pay further contributions if the fund is insufficient) and defined benefit plan (any other plan); deficit or surplus (present value of the obligation less the fair value of plan assets), net defined benefit liability (asset) (the deficit or surplus adjusted for the effect of the asset ceiling) and asset ceiling (present value of the refunds or reductions in future contributions available); plan assets (assets held by a legally separate fund dedicated to the benefits, and qualifying insurance policies, not available to the entity's creditors); past service cost (change in the obligation for prior service resulting from a plan amendment or a curtailment, the latter being a significant reduction in the number of employees covered); settlement (a transaction that eliminates all or part of the obligations, other than benefits provided for in the plan terms and included in the actuarial assumptions).
• IAS 19 §165A liability and an expense for termination benefits are recognised at the earlier of the following dates: when the entity can no longer withdraw the offer of those benefits, and when it recognises restructuring costs within the scope of IAS 37 that involve the payment of termination benefits.
• IAS 19 §166For termination benefits payable in exchange for voluntary departure, the offer can no longer be withdrawn at the earlier of two dates: when the employee accepts the offer, and when a restriction (legal, regulatory, contractual or other) on the entity's ability to withdraw the offer takes effect, i.e. as soon as the offer is made if the restriction already existed.
• IAS 19 §169Termination benefits are measured according to the nature of the benefit: under the requirements for post-employment benefits if they are an enhancement of those benefits; otherwise, under the requirements for short-term employee benefits if they are expected to be settled wholly before twelve months after the end of the annual reporting period in which they are recognised, and under the requirements for other long-term employee benefits if not.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

5 questions

• On 15 November, Solane SA offers its employees voluntary redundancy payments. Nothing prevents it from withdrawing the offer before an employee accepts it. One employee accepts on 10 December, another on 5 January. The year ends on 31 December and, at that date, Solane has recognised no IAS 37 restructuring costs that include termination payments (case facts). Which treatment is consistent at 31 December?L2
• On 18 December, before the reporting date, employees of Dunar SA accepted a departure offer that Dunar can no longer withdraw. The termination payments, totalling {amount}, will be settled in {years}, hence beyond twelve months after the reporting date. The discount rate adopted for the case is {rate} (management's figure). Calculate the liability to recognise at 31 December.L2
• On 10 November, the board of Rivane SA approves the closure of a site and announces it to employees on 25 November. From 1 December, the voluntary redundancy offer is subject to a contractual restriction that prevents Rivane from withdrawing it. Employees can accept it until 15 January. Before 1 December, Rivane had recognised no IAS 37 restructuring costs that include termination payments. The reporting date is 31 December (case facts). Write a note that determines at what date and for what reason a termination benefit liability exists, highlighting what is a matter of professional judgement.L2
• Hovel SA announces in November the closure of a factory. The individual redundancy payments offered to employees can no longer be withdrawn from 15 November. The plan also includes site restoration costs, unrelated to staff (case facts). Which analysis is consistent with the boundary between IAS 19 and IAS 37?L3
• In N, Lyra SA recognises termination benefits under two schemes that are not an enhancement of post-employment benefits (case facts). The Nord scheme will be paid in full in March N+1; the Sud scheme will be paid in monthly instalments until December N+3. The financial year ends on 31 December (case facts). Under which requirements does IAS 19 measure these benefits?L2