Question

According to PAS 19, how are other long-term benefits accounted for?

a. similar to defined benefit plans
b. similar to short-term employee benefits except that the cash flows are discounted
c. similar to defined benefit plans except that all the components of the defined benefit cost is recognized in other comprehensive income
d. similar to defined benefit plans except that all the components of the defined benefit cost is recognized in profit or loss

Answer 1

Other long-term benefits under PAS 19 are accounted for like short-term benefits with cash flows discounted, with cost components recognized in profit or loss, not in other comprehensive income.

Step-by-step explanation:

According to PAS 19 (revised in 2011), other long-term benefits are accounted for similarly to short-term employee benefits, but with the key difference that the expected cash flows are discounted to their present value. This accounting approach acknowledges that benefits such as pensions or life insurance, provided to employees over an extended period, involve future cash outflows subject to the time value of money.

Unlike defined benefit plans, where some components of the defined benefit cost may be recognized in other comprehensive income, all components of the defined benefit cost for other long-term employee benefits are recognized directly in the profit or loss. This treatment aligns with the recognition of the economic benefits as they are consumed, reflecting a more accurate portrayal of the financial impact of these long-term benefits on a company's performance.