Final answer:
a) The total accumulated long-service leave benefit as at 30 June 2020 is $2,250,000. b) The amount reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119 is $1,046,286.60. c) The journal entry for the provision for long-service leave for 30 June 2020 should be: Dr Provision for Long-Service Leave $1,046,286.60, Cr Long-Service Leave Expense $1,046,286.60. d) Long-service leave benefits are required to be discounted in accordance with AASB 119.
Step-by-step explanation:
a) Calculating the total accumulated long-service leave benefit as at 30 June 2020:
To calculate the accumulated long-service leave benefit, we need to determine the number of employees who have met the conditional period of 10 years of employment. From the given information, we know that employees hired on 1 July 2017 have a 40% probability of remaining employed for the duration of the conditional period. We also know that employees hired on 1 July 2019 have a 20% probability of remaining employed for the duration of the conditional period.
Using these probabilities, we can calculate the number of employees who have met the conditional period:
Number of employees hired on 1 July 2017: 12
Number of employees hired on 1 July 2019: 15 * 20% = 3
Total number of employees who have met the conditional period: 12 + 3 = 15
Next, we need to calculate the annual long-service leave benefit for each employee. The annual long-service leave benefit is 13 weeks multiplied by the employee's weekly salary. From the given information, we know the aggregate annual salaries of employees hired on 1 July 2017 is $1,200,000 and the aggregate annual salaries of employees hired on 1 July 2019 is $800,000.
Annual long-service leave benefit for employees hired on 1 July 2017: $1,200,000 / 12 = $100,000
Annual long-service leave benefit for employees hired on 1 July 2019: $800,000 / 10 = $80,000
Finally, we can calculate the total accumulated long-service leave benefit:
Total accumulated long-service leave benefit = (Number of employees who have met the conditional period) * (Annual long-service leave benefit)
Total accumulated long-service leave benefit = 15 * ($100,000 + $80,000) = $2,250,000
b) The amount reported for the long-service leave provision as at 30 June 2020:
In accordance with AASB 119, the long-service leave provision should be reported at the present value of the expected future cash flows associated with the employee benefits. This includes the expected payments for long-service leave for employees who have met the conditional period. To calculate the present value, we need to discount the expected future cash flows using an appropriate discount rate.
The discount rate can be determined based on the interest rates on high-quality corporate bonds. Since the long-service leave benefit is expected to be paid after 10 years of employment, we will use the interest rate for corporate bonds maturing in ten years, which is 10%. We also need to take into account the expected salary increases of 1% per annum.
To calculate the present value, we can use the formula:
Present Value = (Annual long-service leave benefit) / ((1 + Discount rate)^Years until payment)
(Note: Years until payment is the number of years until the long-service leave benefit is expected to be paid. In this case, it is 10 years.)
Present Value for employees hired on 1 July 2017: $100,000 / ((1 + 0.10)^10) = $38,554.79
Present Value for employees hired on 1 July 2019: $80,000 / ((1 + 0.10)^10) = $31,443.57
Total Present Value = (Number of employees who have met the conditional period) * (Present Value)
Total Present Value = 15 * ($38,554.79 + $31,443.57) = $1,046,286.60
Therefore, the amount reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119 is $1,046,286.60.
c) The journal entry for the provision for long-service leave for 30 June 2020:
To record the provision for long-service leave as at 30 June 2020, the following journal entry should be made:
Dr Provision for Long-Service Leave $1,046,286.60
Cr Long-Service Leave Expense $1,046,286.60
d) Employee benefits required to be discounted in accordance with AASB 119:
Employee benefits that are expected to be settled more than one year after the end of the reporting period are required to be discounted in accordance with AASB 119. This includes long-service leave benefits as they are expected to be settled after 10 years of employment. Therefore, the long-service leave benefit is required to be discounted.