Accounting

Difference Between Accumulating And Non Accumulating Sick Leave

What is the difference between accumulating and non accumulating sick leave?

Before differentiating  Accumulating And Non Accumulating Sick Leave, let us see what are actually they. Accumulating sick leave may be carried forward to a future period if the employee has not taken the leave in the current period. Non-accumulating sick leave may not be carried forward to a future period. A liability must be recognized for accumulating sick leave when the employee renders services that increase the entitlement.

The liability is measured as the amount that the entity expects to pay. If the leave is non-vesting, the amount recognized is affected by the probability that the leave will be taken.

Now we have to identify the accumulating and non accumulating sick leave and discuss the assumptions involved in the measurement of a provision for long service leave.  We have to assess the consistency of these requirements with the fundamental qualitative characteristics of financial information prescribed by the Conceptual Framework for Financial Reporting.
An annual adjustment should be made to the provision for annual leave. Some entities make accruals for annual leave more frequently to facilitate more comprehensive internal reporting to management. This is easily achieved with electronic accounting systems or payroll software. Accounting for accumulating sick leave is demonstrated below. In this illustration, the accumulating sick leave is non-vesting.
Maxon Mobil Ltd has 150 employees; who each earn a gross salary of $150 everyday.  In order to reduce absenteeism, Maxon Mobil Ltd introduced a new agreement providing all employees with entitlement to 5 days of non-vesting, accumulating sick leave per annum, effective from 1 July 2012. Under the previous agreement, sick leave was non-cumulative. During the year ended 30 June 2013, 250 days of paid sick leave were taken by employees. It is estimated that 60% of unused sick leave will be taken during the year ended 30 June 2014 and that 40% will not be taken at all. Prepare a journal entry as per IAS 19, to recognize Maxon Mobil Ltd’s liability, if any, for sick leave at 30 June 2013.
60% x (150 x 5 – 250) x $150 = $45 000
30 June 2013
Wages and Salaries Expense Dr 45 000
Provision for Sick Leave                            Cr 45 000 (Accrual of sick leave)

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