Question

Question 5

Winnellie Packing Ltd started business on 1st July 2016 with 12 employees. On the 30th June 2019, three years later, all of these employees were still with the company. On 1st July 2018 the company hired 15 more people but by 30th June 2019 only 10 of those employed at the beginning of that year were still employed by Winnellie Packing Ltd. Once employees have completed a conditional period of 10 years employment they are entitled to 13 weeks' long-service leave. At 30th June 2019 Winnellie Packing Ltd estimates that:

(i) the aggregate annual salaries of all employees hired on 1st July 2016 is now $600,000.

(ii) the aggregate annual salaries of all current employees hired on 1st July 2018 is now $400,000

(iii) the probability that employees hired on 1st July 2016 will continue to be employed for the duration of the conditional period is 40 per cent.

(iv) the probability that employees hired on 1st July 2018 will continue to be employed for the duration of the conditional period is 20 per cent. Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on highquality corporate bonds are as follows: 1 st July 2018 30th June 2019 Corporate bonds maturing in seven years 4% 6% Corporate bonds maturing in eight years 5% 8% Corporate bonds maturing in nine years 5% 8% Corporate bonds maturing in ten years 6% 10% At 30th June 2018 the provision for long-service leave was $6,000. PV of $1 in n periods table on page 7.

Required: (a) Calculate the total accumulated long-service leave benefit as at 30th June 2019.

(b) What amount should be reported for the long-service leave provision as at 30th June 2019 in accordance with AASB 119?

(c) Prepare the journal entry for the provision for long-service leave for 30th June 2019 in accordance with AASB 119.

Answer 1

a)Total accumulated long service leave benefit as at 30-06-2019:A+B=3,962.50

Employee hired on 01/07/2016-

Weekly Salary-6,00,000/52=11,538.46

Eligible amount for long service leave=11,538.46*.40=4,615.38

Amount with yearly increment of 1% at end of 7th year=4,615.38*1.01*1.01*1.01*1.01*1.01*1.01*1.01*1.01*1.01=5,047.78

Present value factor @6% for 7th year=0.665

Present value for Long term service leave=5047.78*0.665=3,356.77(For employees hired on 1/07/2016)---A

Employees Hired on 01/07/2018-

On 30/06/2019-Proportionate salary for 10 employees=(4,00,000*1.01/15)*10=2,69,333

Weekly salary=2,69,333/52=5,179.49

Expected 20% amount of weekly amount=5,179.49*0.20=1,035.90

Incremental amount at the end of 9th year =1,035.90*1.01*1.01*1.01*1.01*1.01*1.01*1.01*1.01=1,121.73

Present value factor @8% for 8th year=0.540

Present value for Long term service leave=1,121.73*0.540=605.73(Employees hired on 01/07/2018)----B