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Exam 12: Accounting for Employee Benefits

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Question 21

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In a long-service leave liability to an employee,a conditional period refers to the period where no legal entitlement to any cash payment or leave exists.

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Question 22

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There is uncertainty involved in long-service leave obligations of employers especially in the early years of employee service.Discuss how the criteria for recognition of a liability are satisfied in the case of long-service leave obligations.

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Long-service leave obligations of employ...

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Question 23

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Annette French joined Paris Ltd on 1 July 2011 as a bookkeeper.She is the only permanent employee of Paris Ltd.On 30 June 2012 her salary was $35 000.Annette French's salary is expected to increase with inflation at a rate of 3%.Paris Ltd provides long-service leave entitlement of 13 weeks after 15 years of service.A pro rata payment is made after 10 years of service.The probability of Annette French staying in the job until the obligation vests is 35%. Other information: $\begin{array} { | r | r | c | } \hline \begin{array} { c } \text { Periods to } \\\text { maturity }\end{array} & \begin{array} { c } \text { Corporate } \\\text { bond rate (\%) }\end{array} & \begin{array} { c } \text { Present value of \$1 at } \\\text { period n }\end{array} \\\hline 15 & 6 & 0.4173 \\\hline 10 & 5 & 0.6139 \\\hline 9 & 3 & 0.8548 \\\hline\end{array}$ What is the long-service leave liability (to the nearest dollar) of Paris Ltd as at 30 June 2012?

Suggested approaches to improving the financial security of employees in the case of the collapse of their employer include:

Employees generally receive superannuation entitlements as part of their employment agreements.This usually involves the employer transferring funds to an independent superannuation fund that is administered by an independent trustee.

Kerry Gill works for Kentucky Enterprises for an annual salary of $60 000.Kerry is entitled to 4 weeks' annual leave per year with a leave loading of 17.5%.What entry each week,additional to the one recording wages expense and PAYG tax deduction,would be required to accrue Kerry's entitlement to annual leave? When Kerry takes his 4 weeks' annual leave,what entry would be made to record this (only) ? The tax is calculated at 30%.(Assume that there are 52 weeks in a year and round to the nearest dollar.)

The following journal entry accounts for one week's (five days) salaries and wages for an employee: Which of the following statements is correct? $\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Provision for sick leave } & 240 & \\\hline \mathrm { Dr } & \text { Salaries and wages } & 160 & \\\hline \mathrm { Cr } & \text { PAYG tax payable } & & 80 \\\hline \mathrm { Cr } & \text { Cash } & & 320 \\\hline\end{array}$

Explain how salaries and wages may be included in the cost of an asset,rather than be treated as a period expense.

An asset may arise where a defined benefit plan has been overfunded or in certain cases where actuarial gains are recognised.An entity recognises an asset in such cases because:

The creation of cash reserves through accounting provisions ensures employees can be paid their entitlements as they fall due.

Junior Ltd employs three workers to develop and test games.The employees are currently earning $30 000 each and are expected to cease their employment in 20 years.At the end of their employment each employee is entitled to a lump sum payment equal to 10% of their final salary.Actuarial analysis suggests salaries will increase evenly at a rate of 5% per year over the 20 years.At the end of the 20 years Junior's undiscounted obligation is $477 593.Assuming an interest rate of 8%,calculate the obligation that would be recorded at the end of year 1 (rounded to the nearest dollar) .

According to the former Australian guidance section of AASB 119 what are the categories of long-service leave entitlements and how should they be accounted for?

Entity A contributes to a defined benefit superannuation plan for its employees.It calculates the following: $\begin{array} { | l | r | } \hline \text { Present value of the obligation } & 25569 \\\hline \text { Fair value of plan assets } & \underline { 25500 } \\\hline & \underline { 69 } \\\hline\end{array}$ The 69 represents:

What discount rate does AASB 119 require to be used to discount estimated future cash outflows associated with the relevant employee entitlements?

Performance bonuses:

Long-service leave that is payable beyond 12 months after the financial year is to be measured at its present value.

Minor Ltd has a weekly payroll of $30 000.Its employees work a 5-day week (Monday to Friday) and are paid on Thursdays in arrears (i.e.for the five days up to,and including,the Thursday) .Pay-as-you-go tax on the weekly payroll is $10 000 and this is paid to the Australian Tax Office on the following Monday.Deductions of $1000 are also made on behalf of employees to pay into a medical benefits fund,which is also paid on the following Monday each week.The year ended 30 June 2014 falls on a Wednesday.Assuming that no reversing entry has been made since the year end,what is the entry to record the payment of the wages and salaries and the tax and medical benefits on the appropriate days immediately after the year end?

In a long-service leave liability,a conditional period is the period during which an employee gains legal entitlement to pro rata payment.

The amount represented as a current liability,'Provision for long-service leave' generally represents:

Junior Ltd employs three workers to develop and test games.The employees are currently earning $30 000 each and are expected to cease their employment in 20 years.At the end of their employment each employee is entitled to a lump sum payment equal to 10% of their final salary.Actuarial analysis suggests salaries will increase evenly at a rate of 5% per year over the 20 years.In 5 years' time,what total benefit will the three employees have accrued (rounded to the nearest dollar) ?