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solution

Ella Ltd provides its employees with long service leave (LSL) entitlements of 13 weeks of paid leave for every 10 years of continuous service. As the company has been operating for only 2 years, no employees have become entitled to long service leave. However, the company recognises a provision for long service leave in accordance with AASB 119/IAS 19. The following information is obtained from Ella Ltd’s payroll records and actuarial reports for the employees at 30 June 2021.

Total number of employees

80

Annual salary per employee

$60 000

Number of years (unit credit)

2 years

Number of years until long service leave is expected to be paid

8 years

Probability that long service leave will be taken (proportion of employees expected to stay long enough to become entitled to long service leave)

10%

Yield on 8-year high-quality corporate bonds at 30/6/2021

10%

Additional information

  • > The estimated annual increase in wages is 2% p.a. for the next 10 years, reflecting expected inflation.
  • > The provision for long service leave for the employees at 30 June 2020 was $5??000.

Required:

Prepare journal entry to account for Ella Ltd’s provision for long service leave at 30 June 2021. Show the working for following steps-

Step 1: Estimate the number of employees who are expected to become eligible for long service leave

Step 2: Estimate the projected salaries

Step 3: Determine the accumulated benefit

Step 4: Measure the present value of the accumulated benefit

Note: Round to the nearest $ amount.

Solution:

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