Tea-Tree Bay Ltd has six employees. According to their particular employment award, long-service leave (LSL) can be taken after 15 years, at which time the employee is entitled to 13 weeks' leave (4.333 days per year entitlement). Further, after 10 years, pro rata payment is allowed so that if employees leave after serving 10 years they will be entitled to a cash payment in relation to their pro rata entitlement to long-service leave (that is, the period between 10 and 15 years is considered to be the 'conditional period'). 

The number of employees of Tea-Tree Bay Ltd, their current salaries and their years of service are provided in the table below:

Number of employees	Current salaries	Years of service	Years until LSL vests	Probability that LSL will vest
1	50,000	3	7	20%
1	40,000	4	6	25%
1	60,000	6	4	35%
1	40,000	7	3	60%
1	50,000	10	0	100%
1	80,000	12	0	100%

High-quality corporate bonds periods to maturity	Bond rate (%)
7	8.0%
6	7.5%
4	6.5%
3	6.0%

The projected inflation rate for the foreseeable future is 3 per cent. Wages will merely keep pace with inflation.

Question

1. Calculate the long-service leave liabilities for Tea-Tree Bay Ltd.

2 Provide the accounting entry for long-service leave from your calculations.

Answer rating: 100% (QA)

Here are the steps to calculate the longservice leave liabilities for TeaTree Bay Ltd 1 Calculate th... View the full answer