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ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits

Zeta Co's board approved a detailed formal plan on 1 November 20X5 to close a factory and made a firm announcement to affected employees on 15 December 20X5, with no realistic possibility of withdrawal. Redundancy payments of $2.4m will be paid in 20X6. Under IAS 19 Employee Benefits, when should Zeta recognise the liability and expense for these termination benefits?

Zeta recognises the $2.4m on 15 December 20X5. Under IAS 19, termination benefits are recognised when the entity can no longer withdraw the offer or when restructuring costs are recognised under IAS 37. Internal board approval alone is insufficient, and cash payment timing is irrelevant.

  1. AOn 15 December 20X5, when the entity can no longer withdraw the offerCorrect
  2. BOn 1 November 20X5, when the board approved the plan
  3. COver the 20X6 period as employees leave
  4. DWhen the cash is paid in 20X6

Explanation

IAS 19 requires termination benefits to be recognised at the earlier of when the entity can no longer withdraw the offer and when it recognises restructuring costs under IAS 37. Here the announcement on 15 December removes the ability to withdraw. Board approval alone does not create a constructive obligation, so 1 November is wrong.

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