Question
Olivia Ltd provides its employees with long service leave (LSL) entitlements of 13 weeks of paid leave for every 10 years of continuous service. As
Olivia 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 3 years, no employees have become entitled to long service leave. However, the company recognises a provision for long service leave in accordance with AASB119/IAS 19. The following information is obtained from Olivia Ltd's payroll records and actuarial reports for the employees at 30 June 2020.
Total number of employees
70
Annual salary per employee
$70 000
Number of years (unit credit)
3 year
Number of years until long service leave is expected to be paid
7 years
Probability that long service leave will be taken (proportion of employees expected to stay long enough to become entitled to long service leave)
30%
Yield on 7-year high-quality corporate bonds at 30/6/2020
8%
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 theemployees at 30 June 2019 was $35 000.
REQUIRED
Provide the number for each step and the journal entryinthe blanksbelowto account for Olivia Ltd's provision for long service leave at 30 June 2020. Round tothe nearest $ amount.
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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:
Journal entry:
30/6/2020
Long Service Leave Expense
Dr
Provision for Long Service Leave
Cr
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