End of Service Benefits:

Accounting Treatment
Warda Khan

Contents
Introduction ............................................................................................................................... 1
Scope ......................................................................................................................................... 1
Definitions ................................................................................................................................. 1
Relevant Standards.................................................................................................................... 2
Provisions for End of Service Benefits ....................................................................................... 2
Classification .......................................................................................................................... 2
Presentation .......................................................................................................................... 2
Initial Recognition.................................................................................................................. 2
Subsequent Measurement .................................................................................................... 2
Calculation Pro-Forma ....................................................................................................... 2
Journal Entries: .................................................................................................................. 3
Disclosures ............................................................................................................................. 3
References ................................................................................................................................. 4

Introduction
This manual states the basis on which End of Service Benefit or End of Service Gratuity is
calculated and recorded. This manual will serve as guide in application of UAE labour law,
and International Financial Reporting Standards (IFRS).

Scope
The scope is to align End of Service Benefit calculation, payments and recoding according to
Dubai regulations. The objective is also to comply with IFRS. Ultimately, the policy should be
applied appropriately and consistently.

Definitions
Provision: a liability of uncertain timing or amount.
Liability:
-

present obligation as a result of past events

settlement is expected to result in an outflow of resources (payment)

Relevant Standards
IAS 1 Presentation of Financial Statements
IAS 37 Provisions, Contingent Liabilities & Contingent Assets
UAE Federal Labour Law

Provisions for End of Service Benefits

Classification
Since the settlement takes more than one year, and the amounts are uncertain, provisions
are also provided in Statement of Financial Position according to IAS 37 Provisions,
Contingent Liabilities & Contingent Assets. In each financial year, any increase or decrease in
provisions is accounted as income or expense in Income Statement.

Presentation
The Provisions for End of Service Benefits are to be shown as a single line in Non-current
liabilities [IAS 1.54].
It can either be as a sub-classification on the face of Statement of Financial Position, or in the
notes. [IAS 1.77-78]

Initial Recognition
When provisions are provided for the first time in financial statements:
DR Income Statement (Expense)
CR Provisions for End of Service Benefit (Liability)

Subsequent Measurement

Provisions increased by additional employees end of service benefit

Provisions reduced by gratuity amount for which leaving employees do not qualify
Provisions reduced by actual gratuity paid

Calculation Pro-Forma
Provisions brought forward at beginning of the financial year
Additional provisions
Amounts used
Unused amounts reversed
Provisions carried forward at end of the financial year

X
X
(X)
(X)
X

Journal Entries:
Additional Provisions:
Dr Income Statement (Expense)
Cr Provisions for End of Service Benefits (Liability)

Amounts used:
Dr Provisions for End of Service Benefits (Liability)
Cr Cash / Payables

Unused amounts reversed:

Dr Provisions for End of Service Benefits (Liability)
Cr Income statement (Income)

Disclosures

Reconciliation for each class of provision: [IAS 37.84]

-

opening balance

additions

used (amounts charged against the provision)

unused amounts reversed

unwinding of the discount, or changes in discount rate

closing balance

Prior year reconciliation is not required. [IAS 37.84]

For each class of provision, a brief description of: [IAS 37.85]

-

nature

timing

uncertainties

assumptions

Reimbursement, if any.

References
http://www.iasplus.com/en/standards/ias/ias1
http://www.iasplus.com/en/standards/ias/ias37
http://emiratesdiary.com/uae-labour-law-2/uae-labour-law-2014-download-pdf-copy