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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. gives employees compensated absences that can be carried forward and used in later periods. At the balance sheet date, employees have 800 days of unused accumulated leave. Based on past experience, the company expects 600 of these days to be taken in future and the remaining 200 days to lapse unused. The average daily wage is Rs 1,500. As per AS 15, what amount should the company recognise as a liability for the accumulating compensated absences?

The liability is Rs 9,00,000. AS 15 requires accumulating compensated absences to be measured at the expected cost of the unused entitlement the employees are likely to take. Only 600 days are expected to be used, at Rs 1,500 per day, while lapsing days are excluded.

  1. ARs 12,00,000
  2. BRs 9,00,000Correct
  3. CRs 3,00,000
  4. DRs 0, since leave is paid only when taken

Explanation

Accumulating compensated absences are recognised as the expected additional amount the entity will pay for unused entitlement. Expected usage is 600 days, so 600 x Rs 1,500 = Rs 9,00,000. Using all 800 days gives Rs 12,00,000, which ignores the expected lapse of 200 days.

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