Question 1

Short-term employee benefits are defined in AASB 119 as:

Accepted Answer

Short-term employee benefits are defined as employee benefits that are wholly due within 12 months after the end of the period in which the employee rendered the related service. Option E is the only choice that accurately reflects this definition. Options A, B, C and D do not fully capture the precise definition of short-term employee benefits.

Question 2

Major Ltd has a weekly payroll of $30,000. Its employees work a 5-day week (Monday to Friday) and are paid on Thursdays in arrears (i.e., for the five days up to, and including, the Thursday). Pay-as-you-go tax on the weekly payroll is $10,000 and this is paid to the Australian Tax Office on the following Monday. Deductions of $1,000 are also made on behalf of employees to pay into a medical benefits fund. The year ended 30 June 2004 falls on a Wednesday. What is the accounting entry to record accrued salaries and wages for this period?

Accepted Answer

Accrued salaries and wages for the period would be recorded as follows:

Salaries and wages expense (5/7 x $30,000) $21,429
Payable to employees $21,429
Accrued tax payable $10,000
Accrued medical benefits payable $1,000

Option A is incorrect because it only records the accrued salary expenses and does not account for the tax and medical benefits payable. Option C and D are incorrect because they do not separate the tax and medical benefits payable from the salaries and wages payable. Option E is incorrect because there is a clear accounting entry required for this transaction.

Question 3

Danish Ltd has an average weekly payroll of $200,000. The employees are entitled to 2 weeks', non-vesting sick leave per annum. Past experience suggests that 56 per cent of employees will take the full 2 weeks' sick leave and 22 per cent will take 1 week's leave each year. The rest of the employees take no sick leave. In the current week an employee with a weekly salary of $600 has been off sick for the first time this year. The employee took 2 days off out of her normal 5-day working week. Assuming that a weekly entry has been made to record the accumulated liability for sick leave and that PAYG tax is deducted at 30 per cent, what would the entry be to record the employee's weekly salary (round amounts to the nearest dollar)?

Accepted Answer

The liability for sick leave is calculated as follows:
- 56% of employees: 2 weeks' leave x 1,000 employees x $200 average weekly salary = $112,000
- 22% of employees: 1 week's leave x 1,000 employees x $200 average weekly salary = $44,000
- Total liability for sick leave = $156,000 per annum
- Liability for sick leave per week = $156,000 / 52 weeks = $3,000

Since the employee took 2 days off out of 5, they took 2/5 of a week off. Therefore, their salary for this week would be calculated as follows:

- 3/5 of their weekly salary ($600) = $360
- PAYG tax at 30% = $108
- Net pay = $252

The entry to record the salary payment and the accrued sick leave liability for this employee would be:
Dr Salaries expense: $360
Dr Accrued Sick Leave: $46 ($3,000 x 2/52)
Dr PAYG Tax: $108
Cr Bank: $514 ($360 + $108 + $46)

Question 4

What discount rate does AASB 119 require to be used to discount estimated future cash outflows associated with the relevant employee entitlements?

Accepted Answer

AASB 119 requires the use of a discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. However, as the liability relates to employee entitlements, a high-quality corporate bond rate may be used as a proxy for the time value of money and the general risks associated with the liability. Option D aligns with this requirement.

Question 5

Kerry Gill works for Kentucky Enterprises for an annual salary of $60,000. Kerry is entitled to 4 weeks' annual leave per year with a leave loading of 17.5 per cent. What entry each week, additional to the one recording wages expense and PAYG tax deduction, would be required to accrue Kerry's entitlement to annual leave? When Kerry takes his 4 weeks' annual leave, what entry would be made to record this (only)? The tax is calculated at 30 per cent. (Assume that there are 52 weeks in a year and round to the nearest dollar.)

Accepted Answer

The answer of Kerry Gill works for Kentucky Enterprises for...

Question 6

'On-costs' can be described as:

Accepted Answer

On-costs refer to the additional costs incurred by an employer in addition to the direct salary or wage of an employee, such as payroll tax, workers compensation insurance, and other benefits like retirement contributions, leave entitlements, and superannuation.

Question 7

According to the former Australian guidance section of AASB 119 what are the categories of long service leave entitlements and how should they be accounted for?

Accepted Answer

According to the former Australian guidance section of AASB 119, the categories of long service leave entitlements are pre-conditional, conditional, and unconditional. The guidance states that to the extent that entitlements accumulated in a period in any of these three categories are expected to result in future cash outflows for the reporting entity, they should be treated as expenses. Therefore, the correct choice is D. Choices A, B, and C are not correct as they do not accurately reflect the former Australian guidance section of AASB 119.

Question 8

Because of the uncertainties involved in making future predictions, AASB 119 requires:

Accepted Answer

The answer of Because of the uncertainties involved in making...

Question 9

Manuka Ltd has seven 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 2 per cent. The future salaries of the employees are expected to keep pace with inflation but not increase as a result of promotion. Based on the information provided, what should the balance of the long service leave provision account be (rounded to the nearest dollar)?

Accepted Answer

The answer of Manuka Ltd has seven employees who are...

Question 10

The amount represented as a current liability, 'Provision for Long-Service Leave' generally represents:

Accepted Answer

The answer of The amount represented as a current liability,...

Question 11

A defined contribution scheme:

Accepted Answer

A defined contribution scheme is a retirement savings plan in which the employer and/or employee make regular contributions to a retirement fund. The contributions made are invested and the eventual value of the retirement fund is dependent on the investment performance. Therefore, the investment risk is transferred from the employer to the employee. The contribution made by the employer is recognised as an expense and the liability created is only for any agreed contribution that remains unpaid at the end of the financial year. Employers measure their obligations on an undiscounted basis, unless they are not wholly due within the 12 months after the period in which the employee rendered their services. Therefore, all the given answers are correct.

Question 12

Which of the following is not a step in accounting for contributions to a defined benefit superannuation plan?

Accepted Answer

The correct step that is not a part of accounting for contributions to a defined benefit superannuation plan is establishing the numbers of years until retirement for each employee to accurately calculate their likely benefit. While the number of years until retirement is a factor in calculating an employee's benefit, it is not the only factor or step in the process. The other options listed (A, B, C, and E) are all important steps in accounting for contributions to a defined benefit superannuation plan.

Question 13

The appropriate accounting treatment for accumulating non-vesting sick leave is to:

Accepted Answer

Accumulated non-vesting sick leave should be recognized as a liability that has accumulated through past services and is expected to be taken if it can be reliably measured. This is in accordance with the matching principle of accounting, which requires recognition of an expense in the same period as the related revenue or benefit. The liability should be re-measured at each reporting date, and any changes in the expected future payments should be recognized in profit or loss.

Question 14

AASB 119 requires which items to be recorded at their discounted amounts?

Accepted Answer

The answer of AASB 119 requires which items to be...

Question 15

Sick leave may be classified as:

Accepted Answer

The answer of Sick leave may be classified as:
...

Question 16

An employee whose contract for service includes an entitlement to 1 week's cumulative sick leave per annum will be entitled to how many weeks' sick leave after 3 years' employment if no sick leave has been taken?

Accepted Answer

After 3 years of employment, the employee would have accumulated 3 weeks of sick leave entitlement (1 week per year).

Question 17

Minor Ltd has a weekly payroll of $30,000. Its employees work a 5-day week (Monday to Friday) and are paid on Thursdays in arrears (i.e., for the five days up to, and including, the Thursday). Pay-as-you-go tax on the weekly payroll is $10,000 and this is paid to the Australian Tax Office on the following Monday. Deductions of $1,000 are also made on behalf of employees to pay into a medical benefits fund, which is also paid on the following Monday each week. The year ended 30 June 2004 falls on a Wednesday. Assuming that no reversing entry has been made since the year end, what is the entry to record the payment of the wages and salaries and the tax and medical benefits on the appropriate days immediately after the year end?

Accepted Answer

The answer of Minor Ltd has a weekly payroll of...

Question 18

Dervish Ltd has an average weekly payroll of $700 000. The employees are entitled to 2 weeks', non-vesting sick leave per annum. Past experience suggests that 66 per cent of employees will take the full 2 weeks' sick leave and 15 per cent will take 1 week's leave each year. The rest of the employees take no sick leave. What weekly entry would Dervish make in relation to sick leave?

Accepted Answer

The answer of Dervish Ltd has an average weekly payroll...

Question 19

An employee whose contract for service includes an entitlement to 2 weeks' non-cumulative, vesting sick leave tenders his/her resignation to take effect exactly halfway through their fifth year of employment. What is the employee's sick leave entitlement, in weeks, that will be paid out on his/her departure assuming that no sick leave has been used?

Accepted Answer

The answer of An employee whose contract for service includes...

Question 20

A defined contribution superannuation plan is one in which:

Accepted Answer

In a defined contribution superannuation plan, the benefits paid out depend on the contributions made to the plan and the earnings of that plan.

Quiz 13: Accounting for Employee Benefits