Question

Cates Computing Systems develops and markets commercial software for personal computers and workstations. Three situations involving compensation for possible future absences of Cates'semployees are described below.

a. Cates compensates employees at their regular pay rate for time absent for military leave, maternity leave, and jury time. Employees are allowed predetermined absence periods for each type of absence.

b Members of the new product development team are eligible for three months' paid sabbatical leave every four years. Five members of the team have just completed their fourth year of participation.

c. Company policy permits employees four paid sick days each year. Unused sick days can accumulate and can be carried forward to future years.

Required:

1. What are the conditions that require accrual of an expense and related liability for employees' compensation for future absences?

2. For each of the three situations, indicate the circumstances under which accrual of an expense and related liability is warranted.

Answer 1

Requirement a

For this situation, accrual is not essential as not each person will want military leave or maternity leave. So it does not come across the four conditions itemized above since payment is not likely and this time off would not be paid for if the employee left the company.

Requirement b

This situation would involve the accrual of an expense and associated obligation for the five team members who have finished their fourth year. This time is now conferred for them and will be paid out even if they are not still employed by Cates Computing Systems. The payment of this time-out leave is now likely, the amount can be sensibly projected and the time can be recognized to services previously executed by the employee

Requirement c

This would also necessitate the accrual of an expense and connected obligation for all employees since it also meets all four conditions and there is no compulsory time on the job before earning the four paid sick days.