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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. allows its employees to carry forward unused earned leave, which can be taken in the following year only. At 31 March, employees have 600 days of unused leave that is expected to be availed within 12 months. Based on past experience, 100 of these days will lapse unused. The average daily wage 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 7,50,000. For short-term accumulating compensated absences, AS 15 requires recognising the expected cost of the unused entitlement that will be availed. Of 600 days, 100 are expected to lapse, so 500 days at Rs 1,500 gives Rs 7,50,000.

  1. ARs 9,00,000
  2. BRs 7,50,000Correct
  3. CRs 1,50,000
  4. DRs 0

Explanation

Accumulating compensated absences are recognised at the expected additional amount the entity will pay for unused entitlement. Expected days to be availed = 600 - 100 = 500. Liability = 500 x Rs 1,500 = Rs 7,50,000. Rs 9,00,000 ignores the days expected to lapse.

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