Question 2 Total 13 marks

Beale Ltd is a small services company that has been in operation for 5 years. It has 5 employees, all of whom have been with the company since it started operations. At year end (30 June), the company measures any obligations it has in respect of employee benefits in accordance with AASB119 Employee Benefits. The following information has been extracted from the payroll and personnel records of the company. The daily pay per employee is $200 and the annual salary per employee is $52,000.

Annual leave entitlements

Each employee is entitled to 20 days annual leave per year, along with a loading of 17.5% when the leave is taken. Annual leave entitlements are accumulating and vesting. At 1 July 2018, the 5 employees had a total of 70 days accrued leave. During the year, they took 105 days leave. At 30 June 2019, the balance in the Provision for Annual Leave prior to adjusting entries was $8,575 DR. All annual leave accumulated at 30 June 2019 is expected to be taken within the following year.

Sick leave entitlements

Each employee is entitled to 10 days sick leave per year. This leave is accumulating and non-vesting. At 1 July 2018, the 5 employees had a total of 38 days accrued sick leave. During the year, they took 24 days leave. At 30 June 2019, the balance in the Provision for Sick Leave prior to adjusting entries was $2,200 CR. It is expected that 40% of the sick leave accumulated at 30 June 2019 will be taken within the following year, 15% will be taken in the year after that, and the remaining 45% will not be taken at all. The yield on 1 year high quality corporate bonds at 30 June 2019 is 5%

Long service leave entitlements

Each employee is entitled to 13 weeks long service leave after 10 years of employment. There is a 60% chance that current employees will remain with the company long enough to become entitled to this leave. The annual salaries of the employees are expected to rise in line with inflation at a rate of 2% per year. The yield on 5 year high quality corporate bonds at 30 June 2019 is 7%. The balance in the Provision for Long Service Leave prior to adjusting entries was $19,600CR.

Required:

a) Determine the companys obligation in respect of employees annual leave entitlements as at 30 June 2019. Prepare the journal entry necessary to reflect this in the year-end financial statements. (3 marks)

b) Determine the companys obligation in respect of employees sick leave entitlements as at 30 June 2019. Prepare the journal entry necessary to reflect this in the year-end financial statements. (4 marks)

c) Determine the companys obligation in respect of employees long service leave entitlements as at 30 June 2019 using the projected unit credit method. Prepare the journal entry necessary to reflect this in the year-end financial statements. (6 marks)