Question
Point Leo Ltd has two employees. According to their particular award entitlements, long- service leave (LSL) can be taken after 15 years at which time
Point Leo Ltd has two employees. According to their particular award entitlements, long- service leave (LSL) can be taken after 15 years at which time the employee is entitled to 13 weeks' leave. After 10 years, a pro rata payment is allowed so that if employees leave after serving 10 years, they will be entitled to a cash payment in relation to their pro rata entitlement to long- service leave.
The name of employees, their current salaries and their years of service are provided in the table below:
Name of employees
Current salary Per
employee
Years of service
Years until LSL vests
Probability that LSL will vest
Damien
$70 000
6
4
60%
Barton
$80 000
7
3
70%
Market yields on high quality corporate bonds are:
High quality corporate bonds periods to
maturity
Bond rate %
3
5
4
6
5
7
The projected inflation rate is 2 per cent per annum and it is expected that wage increases will merely keep pace with inflation. The balance in the LSL provision account at the beginning of the year was $5 500.
Present Value of $1 in n Periods Table (extract):
Period
5%
6%
3
.8638
.8396
4
.8227
.7921
5
.7835
.7473
Required
(a)Calculate the long-service leave liabilities of Point Leo Ltd.
(b)From your calculations, provide the general journal entry to recognise the long service leave liability at the end of the year.
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