ACT204 Financial Accounting Assignment 1

Problem 1: Long Service Leave

Darwin Ltd has five employees. According to their particular employment award, long- service leave can be taken after 12 years, at which time the employee is entitled to 10 weeks’ leave. If an employee were to leave before the completion of 12 years’ service, no entitlement would be paid. High-quality corporate bond rates exist with periods to maturity that exactly match the various periods that must still be served by the employees before LSL entitlements vest with them. The projected inflation rate for the foreseeable future is 2 per cent. The projected probabilities that the employees will stay long enough for the LSL to vest—that is, for a total of 12 years—are as follows:

Required:

(a) Calculate Darwin Ltd.’s current obligation for long-service leave. 05

(b) If the opening provision for long-service leave is $12 500, provide the journal entry to record Darwin Ltd.’s long-service leave expense.