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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sundaram Textiles Ltd. has a policy under which employees may carry forward unused paid leave only up to the next year, and the leave can be availed but not encashed. At the year end, 40 employees have 5 days each of unused leave that will lapse if not used in the next 12 months. The average daily wage is Rs 1,000. Based on past experience, the company expects 80% of this leave to be actually availed in the next year. How much should be recognised as liability for short-term accumulating compensated absences at year end?

The liability is Rs 1,60,000. AS 15 requires recognising the expected additional cost of accumulating compensated absences even if they are non-vesting. Expected leave to be availed is 80% of 200 days, that is 160 days, multiplied by Rs 1,000 per day.

  1. ANil, since the leave is non-vesting and cannot be encashed
  2. BRs 1,60,000Correct
  3. CRs 2,00,000
  4. DRs 40,000

Explanation

Under AS 15, expected cost of short-term accumulating compensated absences is recognised as the additional amount the entity expects to pay from unused entitlement. Total unused days = 40 x 5 = 200 days; expected to be used = 80% = 160 days; 160 x Rs 1,000 = Rs 1,60,000. Rs 2,00,000 ignores the expected usage, and nil is wrong because accumulating non-vesting leave still creates an obligation.

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