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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Kaveri Engineering Ltd. has 400 employees. Each employee is entitled to 5 days of accumulating non-vesting sick leave per year. At the year end, past experience indicates that 300 employees will take no more than 5 days each next year, and the remaining 100 employees will take on average 3 additional days each (beyond the 5 days) from the unused accumulated entitlement. The average wage cost is Rs 2,000 per day. What liability should be recognised at the year end for the unused accumulated sick leave?

The liability is Rs 6,00,000. AS 15 requires recognising the expected additional payment arising from unused accumulated entitlement. One hundred employees are expected to take three extra days each, giving 300 days, which at Rs 2,000 per day equals Rs 6,00,000. The other 300 employees add nothing.

  1. ANil
  2. BRs 3,00,000
  3. CRs 6,00,000Correct
  4. DRs 8,00,000

Explanation

Under AS 15, accumulating compensated absences are recognised at the additional amount expected to be paid because of unused entitlement. Additional days expected = 100 x 3 = 300 days. Liability = 300 x Rs 2,000 = Rs 6,00,000. Rs 3,00,000 would result from using 150 days, which is not supported by the data.

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