Question

Melbourne Pty Ltd has an average weekly payroll of $600,000. The employees receive entitlements to two weeks sick leave per year. The sick leave entitlements are classified as non-vesting. Past experience suggests that 50% of employees will use their full two weeks entitlements each year, 25% of employees will take one weeks sick leave each year and 15% of employees will take one day’s sick leave each year.

1. Calculate the expected sick leave expense for Melbourne Pty Ltd (on the basis of average salaries).
2. Provide the monthly journal entries necessary to recognise the sick leave entitlement expense as it accrues.

Answer 1

Part A

1 week = 5 work days

	Number of work days	Multiply: Probability of entitlements uses	Multiply of both
2 weeks (2*5)	10	50%	5.00
1 week (1*5)	5	25%	1.25
1 days	1	15%	0.15
Expected sick leave entitlement days uses			6.40

Weekly payroll			$               600,000
Divided by: Workdays per week			5	Days
Payroll per days			$               120,000
Expected sick leave entitlement days uses			6.40	Days
Expected sick leave expense			$               768,000

Part B

Event	General journal	Debit	Credit
B	Sick leave expense	$   768,000
	Provision for sick leave		$    768,000
	To record accrue sick leave entitlement expense.