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Chapter 13: Q13Q (page 691)

Under what conditions is an employer required to accrue a lability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?

Short Answer

Expert verified

An employer is required to accrue a liability for “sick pay” those employers are permitted to collect and use their free time though their absence is because of illness. An employer is permitted but they are not needed to accrue to liability to sick pay those employees are permitted to claim only as a consequence of actual illness.

Step by step solution

01

Meaning of Liability

Liability is a binding debt that is ought to be paid to another business. These are undergone so as to fund the day-to-day activities of a business.

02

Conditions under which an employer is required to accrue a liability for sick pay

Employer must accrue a liability for the non-availability if certain criteria are met:

  • Employer’s liability to provide payment for future leave is obtained from the past services provided by them.
  • Employees’ rights to paid leaves either vest or accumulate.
  • Employer’s payment of the remuneration is predictable.
  • Employer can logically estimate the value of its debt.
03

Conditions under which an employer is permitted but not required to accrue a liability for sick pay

Conditions under which an employer is allowed but are not needed to accrue a liability for sick pay. These are:

  • If sick pay advantages are disbursed after completion, accrual is needed.
  • If sick pay advantages can be carried forward but do not vest, accrual is allowed but not essential.

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Most popular questions from this chapter

(Available-for-Sale and Held-to-Maturity Debt Securities Entries) The following information relates to the debt

securities investments of Wildcat Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of \(300,000 at 100 plus accrued interest.

Interest is payable on April 1 and October 1.

2. On April 1, semiannual interest is received

3. On July 1, 9% of bonds of Sampson, Inc. were purchased. These bonds with a par value of \)200,000 were purchased at 100

plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 were 95 and 93, respectively.

Instructions

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are

available-for-sale securities.

(b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above

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