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Hi
If anyone is studying the DipIFR through BPP, this question is on Page 161 of the study text and is giving me a few headaches, so help will be appreciated.Plyman has 100 employees, each entitled to 5 days sick leave per year, unused sick leave can be carried forward for 1 year, sick leave is used up FIFO principle so use current years leave before c/f leave, as at 31 dec x8 average sick leave entitled = 2 days per head, they exect on average that 92 people will take 5 days or less in x9 and 8 people 6,5 days each.
What is the accounting for sick leave.
in my book they will use 512 days in x9 (92*5)+(8*6.5) which means they use 12 days of the c/f leave of 100 days. So my accounting treatment would be to reduce my provision by 12 days.
BPP solution is: they expect to pay 12 days extra sick leave as a result of unued entitlement @ 31decx8 so they should recognise a liability equal to 12 days.
Really confusing!
Hi Dean
Now, if we’re looking at a provision for X8, on the basis of best estimate, the company is facing an estimated liability of 8 x 1.5
I have to agree with the BPP answer. X9 is another issue dependent upon best estimates at the end of X9
The fact that there are 200 potential days is (almost) irrelevant. the provision needs to be based on best estimate and that gives us just 12 days
Sorry, one further point – IAS 19 is a P2 issue. Those of you reading this as F7 students, don’t panic!
Dean, this question should not have been in this F7 forum!
Thanks Mike, apologies for posting in the wrong forum.
So the question really wants us to look at the potential liability at end x8 that is related to the usage of leave in x9 that right? The fact that we would have a provision for the 200 days doesn’t play a part then.
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