Sun Shoe Ltd has five employees. According to their particular employment award, long service leave can be taken after 15 years, at which time the employee is entitled to 13 weeks leave. If the employee leaves before they have completed 15 years' service, there will be no entitlement to leave or to a cash payment in the lieu of leave. The names of the employees, their current salaries and their years of service as at the end of the reporting period are as follows:

Name of the employee Current salary Years of service Years until LSL vests

Smith 30,000 5 10

Jones 40,000 8 7

Johnson 40,000 10 5

Gunston 50,000 15 0

Billabong 40,000 18 0

The provision for long service leave as at the beginning of the reporting period is $20 900. High quality corporate bonds exist with periods to maturity that exactly match the various periods that must still be served by the employees before LSL entitlement vests with them. These bond rates are as follows:

Corporate bond period to maturity Bond rate (%)

10 7.0

7 6.2

5 6.0

The projected inflation rate for the foreseeable future is 2 percent. The projected probabilities that the employees will stay until such time as the LSL vests are provided in the following table:

Name Probability (%) that employee will stay until LSL vests

Smith 20

Jones 30

Johnson 60

Gunston 100

Billabong 100

Required:

(I) Calculate the long service leave obligation for Sun shoe Ltd as at the reporting period

(II) Provide the necessary accounting entry to recognize the long service leaveexpense for the year