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Provisions for paid leave of absence (paid vacation)

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Provisions for paid leave of absence (paid vacation)

  • This topic has 2 replies, 2 voices, and was last updated 6 years ago by yuska.
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    Posts
  • February 6, 2019 at 10:31 am #504321
    yuska
    Member
    • Topics: 15
    • Replies: 11
    • ☆

    H?

    Employee’s working year is from 01.07.2018 to 30.06.2019. The employee has right to take 30 calendar days for paid leave of absence (paid vacation). The right of 15 calendar days paid vacation is formed for the period from 01.07.2018 to 31.12.2018. The remain right of 15 calendar days paid vacation is formed for the period from 01.01.2019 to 30.06.2019.
    The employee will use the whole paid vacation days (30 days) beginning of 01.03.2019 (during March 2019). Assume that payment for the 30 days paid leave of absence is 10000 USD. The company recognize the whole amount (10000 USD) as salary expense in March 2019.
    Can the company create provisions in the amount of 5000 USD ( 10000 USD / 30 calendar days * 15 calendar days) according to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. ?.e the company don’t want to recognize the whole 10000 USD amount in 2019, and want to split the whole amount into two parts and recognize 5000 USD in 2018, and 5000 USD in 2019.
    Does IFRS give permission to do like that?

    February 6, 2019 at 6:25 pm #504364
    Kim Smith
    Keymaster
    • Topics: 133
    • Replies: 8301
    • ☆☆☆☆☆

    That isn’t how holiday pay works. If the salary is $120,000 a year, the employee is paid $10,000 regardless of whether they are working or taking any days’ holiday during the month.
    Accounting for holiday accruals is just normal accruals accounting – not “provisioning”.

    So if, for whatever reason, the accounting y/e was 31.12.18 and the employee hasn’t taken his 15 days (yet) – but carrying forward 5 days, say, to take in the new year, the company would accrue 5/240 x $120,000 = $2,500. (I’m assuming 240 working days a year)
    One way of looking at this is if the employee were to cease employment at the y/e, he’d be entitled to be paid for holiday not yet taken.
    Similarly, if the employee took 20 days in the first 6 months – they technically “owe” the company to work those days or reimburse the company – so the company would recognise a prepayment (of the same amount).

    If holiday years coincide with financial years and employees must “use it or lose it”, no adjustment would be necessary.

    February 12, 2019 at 5:53 am #504838
    yuska
    Member
    • Topics: 15
    • Replies: 11
    • ☆

    thanks for your answer!

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