Skip to content

CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. allows its employees to carry forward unused privilege leave, which can be taken only in the next year and lapses if not availed then. At the balance sheet date, employees have 600 days of such unused leave. Based on past experience, 80% of it is expected to be availed. The average daily salary cost is Rs 1,500. How should the company account for this under AS 15?

The company should recognise a liability of Rs 7,20,000. Leave usable only in the next year is a short-term accumulating absence, measured at the expected cost of the days likely to be taken: 480 days (80% of 600) multiplied by Rs 1,500 per day, undiscounted.

  1. ARecognise no liability, because the leave is non-vested and only paid when taken
  2. BRecognise a liability of Rs 7,20,000 as short-term accumulating compensated absencesCorrect
  3. CRecognise a liability of Rs 9,00,000 as short-term accumulating compensated absences
  4. DRecognise a liability of Rs 7,20,000 as a long-term employee benefit using the projected unit credit method

Explanation

Leave that can be used only within 12 months after the period end is a short-term accumulating compensated absence. The expected additional cost is the unused entitlement expected to be taken: 600 x 80% = 480 days x Rs 1,500 = Rs 7,20,000, recognised undiscounted. Rs 9,00,000 ignores the expected lapse. Non-vesting does not remove the obligation for accumulating absences.

Did you get it right without looking?

One question tells you little. A timed set on AS 15 Employee Benefits shows your real accuracy, how long you take and where you lose marks.

Practise AS 15 Employee BenefitsFree diagnostic mock

More AS 15 Employee Benefits questions