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CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Sunrise Textiles Ltd. has a leave encashment policy under which employees may carry forward unused leave and encash it only on retirement or resignation. Employees can also take the leave as paid time off in a later year. How does AS 15 classify the carried-forward leave, and when should the expense be recognised?

Carried-forward leave is accumulating compensated absence under AS 15. The company must recognise the expected cost of it as employees render service that increases their entitlement, not when the leave is taken or paid, because the obligation arises as the service is given.

  1. AAccumulating compensated absences; recognised as the employees render service that increases their entitlementCorrect
  2. BNon-accumulating compensated absences; recognised only when the leave is actually taken
  3. CTermination benefit; recognised when the employee resigns
  4. DPost-employment defined benefit; recognised only on payment of cash at retirement

Explanation

Leave that can be carried forward and used in future periods is accumulating compensated absence. AS 15 requires the expected cost to be recognised as the service is rendered that increases the entitlement. Non-accumulating leave is the type recognised only when the absence occurs, so option B is wrong.

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