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Reasonableness test on wages and salaries

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Reasonableness test on wages and salaries

  • This topic has 8 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
Viewing 9 posts - 1 through 9 (of 9 total)
  • Author
    Posts
  • June 3, 2024 at 9:35 pm #706563
    carlline
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Company X had 220 employees at 30.04.X4 and a wage bill of 8.197m.
    They had 260 employees at 01.05.X4. They had 300 employees at 30.04.X5.
    Employees increased evenly during the year. All employees received a 2% salary increase on 01.11.X4. Statutory state deductions increased from 5% to 6% at 01.05.X4. Calculate the estimated wage bill for y.e. 30.04.X5.

    Can you please help me with this?
    Thank you!

    June 4, 2024 at 7:34 am #706587
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8308
    • ☆☆☆☆☆

    This was an OT Q on yesterday’s exam?

    June 4, 2024 at 10:33 am #706609
    carlline
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Yes, how do we solve this?

    June 4, 2024 at 11:27 am #706614
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8308
    • ☆☆☆☆☆

    It’s asking for a “test in total” analytical procedure. Before I write an answer can you please confirm employee numbers and dates are correct, I.e. company recruited 40 people (260 – 220) on 1.5.X4

    June 4, 2024 at 11:30 am #706615
    carlline
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    The information given above is the same as what was given in the exam 🙁

    June 5, 2024 at 2:17 pm #706729
    carlline
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    They did mention increase in employees occurred evenly throughout the year

    June 5, 2024 at 2:18 pm #706730
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8308
    • ☆☆☆☆☆

    Apologies for the delay in responding, I have deadlines to meet at the moment:

    Company X had 220 employees at 30.04.X4 and a wage bill of 8.197m.
    Therefore, average annual salary is 37259 (8.197/220)
    They had 260 employees at 01.05.X4.
    If there were no other changes, estimated wage bill for 20X5 would be 9687364 (260*37295)

    However, there are two changes: increasing # of employees and salary increase:
    Salary increas is 1/2 way through the year, therefore need to consider separately 1st and 2nd 6-month periods:

    They had 300 employees at 30.04.X5.
    Employees increased evenly during the year. i.e. increase of 40 over the year, so increase of 20 in each 6-month period

    For 6 months to 31/10/X4, estimated wage bill is:
    average # of employees x 6-month salary = (260+280)/2 x $37259/2 = 5,029,965

    For 6 months to 31/10/X4, estimated wage bill with 2% increase is:
    average # of employees x 6-month salary = (280+300)/2 x $37259/2*102% = 5,510,606

    Therefore estimate is 10540571.1 i.e. $10.541m

    June 5, 2024 at 10:36 pm #706791
    carlline
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Thank you!
    So we don’t consider the decrease in statutory state deductions? Can I please get a reasoning on this?

    June 6, 2024 at 7:30 am #706807
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8308
    • ☆☆☆☆☆

    So if you’re in the UK, employees pay National Insurance Contributions (may be called Social Security Insurance or similar in other countries). This is an example of a statutory deduction – employers must deduct this from employees’ gross pay and pay it over to a tax authority.

    It only affects the employees – who are paid “net” of deductions. It doesn’t affect the cost to the employer – they are merely collecting taxes for the state.

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