Question 1

Dennis Carter works for Midrift Ltd and has taken his long service leave this period. He was paid $2,450 as his entitlement. What account(s) is/are debited in the entry to record this event?

Accepted Answer

The answer of Dennis Carter works for Midrift Ltd and...

Question 2

The expense recognised by an employer for a defined benefit superannuation plan:

Accepted Answer

The expense recognised by an employer for a defined benefit superannuation plan is determined by actuarial calculations and is based on factors such as the expected return on plan assets, discount rate, and demographic assumptions such as life expectancy. Therefore, it is not necessarily the same as the amount of the contribution for the period.

Question 3

Entity A contributes to a defined benefit superannuation plan for its employees. It calculates the following:
Present value of the obligation 12,286
Fair value of plan assets 11,500
786
The $786 represents:

Accepted Answer

The $786 represents the shortfall between the present value of the obligation and the fair value of plan assets. As such, it represents a liability that needs to be recognised in the balance sheet.

Question 4

The causes of actuarial gains and losses when accounting for defined benefit superannuation plans includes:

Accepted Answer

The answer of The causes of actuarial gains and losses...

Question 5

AASB 119 has resulted in many more companies recognising liabilities for employee entitlements. There is evidence that this requirement has the effect of:

Accepted Answer

The answer of AASB 119 has resulted in many more...

Question 6

In Australia, employee entitlements are protected in the case of company insolvency because:

Accepted Answer

Employees are given preferential access to payment, but only after secured creditors. This means that if the company goes into insolvency and there are not enough assets to pay off all debts and entitlements, employees still have some protection and may receive some priority for payment. However, they are not given first priority and may still not receive their full entitlements.

Question 7

AASB 119 defines 'employee benefits' as:

Accepted Answer

AASB 119 defines 'employee benefits' as all forms of consideration given up by an entity in exchange for service rendered by employees, which includes both cash and non-cash benefits like pensions, bonuses, and share-based payments. Salaries, wages, payments for leave and share options mentioned in option E are part of employee benefits, but not the complete definition. Option A and B are too narrow, and option C is redundant.

Question 8

Performance bonuses:

Accepted Answer

Performance bonuses are typically considered a part of salaries and wages and are treated in the same manner. They are not capitalised as part of the cost of an asset or charged directly against "Opening Retained Earnings." They also do not form a part of employees' leave entitlements. While AASB 119 does provide guidance on employee benefits, it does not specifically address performance bonuses.

Question 9

Midrift Ltd has nine employees who are entitled to long service leave (LSL). The LSL can be taken after 12 years of service, at which time the employee is entitled to 15 weeks' leave. After 10 years the employee is entitled to a pro rata cash payment on leaving the company. Information about the employees is set out below:

Other information collected.

The inflation rate for the foreseeable future is 1.5 per cent. The future salaries of the employees are expected to keep pace with inflation but not increase as a result of promotion. If the opening balance of the LSL provision is $87,560, what is the entry to record LSL expense for the current period (round amounts to the nearest dollar)?

Accepted Answer

To calculate the LSL expense for the current period, we need to take the following steps:
1. Calculate the number of employees entitled to LSL: 9 employees
2. Calculate the pro rata cash payment for employees with 10 years of service: 
- Employee A: $62,500 × 10 ÷ 12 = $52,083.33
- Employee C: $77,500 × 10 ÷ 12 = $64,583.33
- Employee E: $92,500 × 10 ÷ 12 = $77,083.33
- Total pro rata cash payment = $193,750
3. Calculate the present value of the LSL liability for employees with 12 years of service:
- Employee B: $77,500 × 15 weeks = $18,437.50
- Employee D: $92,500 × 15 weeks = $21,875
- Total present value of LSL liability = $40,312.50
4. Calculate the inflation adjustment for the LSL liability:
- Inflation rate = 1.5%
- Inflation adjustment = $40,312.50 × 1.5% = $604.69
5. Calculate the total LSL expense for the current period:
- LSL expense = pro rata cash payment + present value of LSL liability + inflation adjustment = $193,750 + $40,312.50 + $604.69 = $234,667.19
6. Record the journal entry to recognize the LSL expense for the current period:
- Debit LSL expense for $234,667
- Credit LSL provision for $234,667

Therefore, the answer is B.

Question 10

Post-employment benefits include:

Accepted Answer

Post-employment benefits can include all of the given options. Cash payments can be made to retired employees, pensions can be paid through a superannuation fund, and insurance costs can be covered for retired employees.

Question 11

The following journal entry accounts for one week's (five days) salaries and wages for an employee:

Which of the following statements is(are) correct?

Accepted Answer

The answer of The following journal entry accounts for one...

Question 12

Suggested approaches to improving the financial security of employees in the case of the collapse of their employer include:

Accepted Answer

The establishment of central funds, either in the form of government-backed compulsory insurance or a trust to which it is compulsory for employers to contribute, from which employee entitlements could be paid in the case of corporate collapse, would be the most effective approach. This ensures that employees have financial support in the event of their employer's failure without them having to rely on individual self-insurance or union funding, which may not be feasible for all employees. Additionally, having a sub-committee of Cabinet overseeing the funds would ensure transparency and accountability in the management of the funds.

Question 13

When salaries and wages are capitalised as part of the costs of an asset, such as inventory:

Accepted Answer

The answer of When salaries and wages are capitalised as...

Question 14

Trailers of the World has a small group of four employees. Trailers take part in a defined contribution plan and pay the required government contribution of 9 per cent plus an additional 4 per cent to reward its employees. Based on the employee earnings below, what is Trailers' superannuation obligation for the year?

Accepted Answer

The answer of Trailers of the World has a small...

Question 15

Masters Ltd has three employees who are entitled to long service leave (LSL). The LSL can be taken after 15 years of service, at which time the employee is entitled to 13 weeks' leave. After 10 years the employee is entitled to a pro rata cash payment on leaving the company. Information about the employees is set out below:

Other information collected.

The inflation rate for the foreseeable future is 3.5 per cent. The future salaries of the employees are expected to keep pace with inflation but not increase as a result of promotion. If the opening balance of the LSL provision is $20,561, what is the LSL expense for the current period (round amounts to the nearest dollar)?

Accepted Answer

The answer of Masters Ltd has three employees who are...

Question 16

AASB 119 divides employee benefits into a number of categories, including:

Accepted Answer

AASB 119 divides employee benefits into a number of categories, one of which is termination benefits. The other options listed are not categories of employee benefits under AASB 119.

Question 17

Junior Ltd employs three workers to develop and test games. The employees are currently earning $30,000 each and are expected to cease their employment in 20 years. At the end of their employment each employee is entitled to a lump sum payment equal to 10 per cent of their final salary. Actuarial analysis suggests salaries will increase evenly at a rate of 5 per cent per year over the 20 years. At the end of the 20 years Junior's undiscounted obligation is $477,593. Assuming an interest rate of 8 per cent, calculate the obligation that would be recorded at the end of year 1 (rounded to the nearest dollar):

Accepted Answer

The answer of Junior Ltd employs three workers to develop...

Question 18

Junior Ltd employs three workers to develop and test games. The employees are currently earning $30,000 each and are expected to cease their employment in 20 years. At the end of their employment each employee is entitled to a lump sum payment equal to 10 per cent of their final salary. Actuarial analysis suggests salaries will increase evenly at a rate of 5 per cent per year over the 20 years. In 5 years' time, what total benefit will the three employees have accrued (rounded to the nearest dollar):

Accepted Answer

To calculate the total benefit accrued by the employees in 5 years, we need to first determine their salaries after 5 years.

Using the formula for annual compound interest:

Final Salary = Initial Salary * (1 + Rate of Increase)^Number of Years

After 5 years, the employees' salaries will be:

Final Salary = $30,000 * (1 + 0.05)^5 = $38,384.03

The lump sum payment each employee will receive at the end of their employment will be:

Lump Sum = 10% * Final Salary = 10% * $38,384.03 = $3,838.40

To calculate the total benefit accrued by the three employees in 5 years:

Total Benefit = (Lump Sum + Annual Salary * 5) * 3

= ($3,838.40 + $30,000 * 5) * 3

= $119,398.40

Rounding to the nearest dollar, the answer is D) $119,399.

Question 19

A non-contributory superannuation fund means:

Accepted Answer

The answer of A non-contributory superannuation fund means:
...

Question 20

The following journal entry shows:

Accepted Answer

The journal entry code is not specific enough to indicate whether the provision account is being built up or whether an employee is taking long-service leave or being paid out their entitlement. However, the entry code does suggest that both scenarios may have occurred, making choice D the best option.

Quiz 13: Accounting for Employee Benefits