CA Intermediate · Advanced Accounting · AS 15 Employee Benefits

Veda Textiles Ltd. gives its employees 30 days of paid annual leave each year. Unused leave can be carried forward for up to one year only and cannot be encashed. At the balance sheet date, 40 employees have an average of 5 unused days each, and the average daily wage is Rs 1,000. Based on past experience, the company expects all of these days to be used in the following year. What amount should be recognised as a liability for the short-term accumulating compensated absences?

The liability is Rs 2,00,000. Under AS 15, accumulating compensated absences are recognised as the expected cost of the unused entitlement carried forward, even if non-vesting. Total unused days are 200 (40 x 5), multiplied by Rs 1,000 per day, giving Rs 2,00,000.

ANil, because the leave is non-vesting
BRs 2,00,000Correct
CRs 1,00,000
DRs 40,000

Explanation

Accumulating compensated absences are recognised as the expected additional amount the entity will pay for unused entitlement. Unused days = 40 x 5 = 200 days. Liability = 200 x Rs 1,000 = Rs 2,00,000. Non-vesting leave still gives rise to a liability, since non-vesting only affects the measurement through the probability of use, so Nil is wrong.

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