Digitor Industries Ltd accrues long service leave as employees work towards their entitlement. For tax purposes, long service leave is not deductible until it is paid. During the current period Digitor has accrued $50,000 in long service leave expense and paid none. The tax rate is 30 per cent. What is the journal entry to record the deferral?
E) None of the given answers.

Question

Quizplus · Accepted Answer

The journal entry to record the deferral of long service leave expense until it is paid is:

Dr Long Service Leave Expense 50,000 
Cr Long Service Leave Payable 50,000

As the long service leave expense is not deductible until it is paid, it is recorded as an asset in the balance sheet and the corresponding liability is recorded in the form of Long Service Leave Payable. This deferral ensures that the expense is matched with the related revenue in the period in which the long service leave is taken, as required by the matching principle. The tax implications are not relevant to the journal entry.

Digitor Industries Ltd Accrues Long Service Leave as Employees Work