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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. allows its employees to carry forward unused paid leave up to 10 days, which can be taken in the next year only (non-vesting, accumulating). At the balance sheet date, 200 employees have on average 3 days of unused leave each. The company expects that 150 of these employees will use their entire carried forward leave and 50 will use none. The average daily wage is Rs 1,000. What amount should be recognised as a liability for short-term compensated absences at the balance sheet date?

The liability is Rs 4,50,000. For accumulating compensated absences, AS 15 requires recognising the expected additional cost of unused entitlement that the company expects employees to use. 150 employees x 3 days x Rs 1,000 equals Rs 4,50,000; leave not expected to be used is excluded.

  1. ARs 6,00,000
  2. BRs 1,50,000
  3. CRs 4,50,000Correct
  4. DRs 3,00,000

Explanation

For accumulating compensated absences, the expected additional payment is recognised for the unused entitlement expected to be used. Employees expected to use leave: 150 x 3 days = 450 days. 450 x Rs 1,000 = Rs 4,50,000. Rs 6,00,000 wrongly covers all 200 employees (600 days) including leave not expected to be used.

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