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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Meridian Textiles Ltd. allows its employees to carry forward unused leave, which can be taken only in the next year while the employee is in service. At 31 March, the company estimates that 40 employees will use on average 3 days of accumulated leave each in the next year. The average daily pay is Rs 1,500. Under AS 15, what amount should be recognised as a liability for accumulating compensated absences at the year-end?

The liability is Rs 1,80,000. AS 15 requires accumulating compensated absences to be recognised as the expected cost of the unused entitlement, which is 40 employees x 3 days x Rs 1,500. Recognition on actual leave taken applies only to non-accumulating absences.

  1. ANil, because it is recognised only when the leave is actually taken
  2. BRs 1,80,000Correct
  3. CRs 60,000
  4. DRs 4,500

Explanation

For accumulating compensated absences, the expected additional cost is the unused entitlement the entity expects to pay. Here 40 employees x 3 days x Rs 1,500 = Rs 1,80,000. Recognising nil applies only to non-accumulating absences. Rs 60,000 is 40 x 1,500, which wrongly counts a single day per employee.

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