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Problem 1: Long Service Leave (All figures are rounded off to the nearest whole number)
Step 1: Salary at T12
| Black | $ 40,000 |
| White | $ 40,000 |
| Brown | $ 50,000 |
| Green | $ 60,000 |
| Purple | $ 70,000 |
We will assume the growth rate of salary to be equal to the inflation rate given which is 2%
Future Salaries:
| Black | $ 48,760 |
| White | $ 46,866 |
| Brown | $ 56,308 |
| Green | $ 64,946 |
| Purple | $ 72,828 |
Step 2: Determine Leave Earned
| Black | $ 48,760 | x 10/52 x 2/12 | = $ 1,563 |
| White | $ 46,866 | x 10/52 x 4/12 | = $ 3,004 |
| Brown | $ 56,308 | x 10/52 x 8/12 | = $ 5,414 |
| Green | $ 64,946 | x 10/52 x 6/12 | = $ 8,326 |
| Purple | $ 72,828 | x 10/52 x 10/12 | = $ 11,671 |
Step 3: PV Leave Earned
| Black | $ 1563/(1.08)^10 | = $ 724 |
| White | $ 3004/(1.07)^8 | = $ 1,748 |
| Brown | $ 5414/(1.065)^6 | = $ 3,710 |
| Green | $ 8326/(1.06)^4 | = $ 6,595 |
| Purple | $ 11671/(1.058)^2 | = $ 10,426 |
Step 4: Probability that leave will be taken
| Black | $ 724 | x 0.15 | = $ 109 |
| White | $ 1,748 | x 0.20 | = $ 350 |
| Brown | $ 3,710 | x 0.50 | = $ 1855 |
| Green | $ 6,595 | x 0.70 | = $ 4616 |
| Purple | $ 10,426 | x 0.90 | = $ 9384 |
(a) Provision for LSL Balance = $ 16,314
(b) Journal Entry to record Darwin Ltd.’s long-service leave expense, Opening Balance $12,500.
| Debit | Credit | |
| LSL Expense* | 3814 | |
| Provision for LSL | 3814 | |
| * Note: AASB 119.156 requires Dr to go to the expense, unless it can be put towards an asset | ||
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