09 November 2009
The Short Term expensess on a/c of absences are to be charged to P&L a/c as per the AS -15, where is the second effect given to? And also if the said absences are not availed by the employees & if they elapse how are they treated as a it was charged to P&L a/c in the previous year.
11 November 2009
Hi subrahmanyam, this is covered under short term benefits. for your convenience, i m giving the whole accounting treatment for short term benefits including short term absences as under : An enterprise should recognise the benefits payable on accrual basis in the following manner: 1. the amount expected to be paid is to be recognised as a liability. in effect, this is an accrued expenses. therefore, the amount of liability should be adjusted for amount already paid, and the unpaid amount is recognised as a liability. 2. where the amount already paid during the year exceeds the amount expected to be paid (payable),the excess will be recognised as an asset, in the form of prepaid expense. 3. the amount should be recognised on undiscounted basis. 4. the total amount of short-term benefit accruing for the period should be recognised as an expense 5. A part of such expense can be included as the cost of asset if permitted by another accounting standard e.g capitalisation of salary paid during construction period under AS 10 thanks and regards, CA Shakuntala Chhangani
16 November 2009
Thank U for the explanation, now taking it further my Q is: Say as per company's policy an employee has entitlement to 10 leaves in 2009 which he avail in the current year and which can be carried forward to next year or enchased in 2010 if unavailed. Since this entitlement happened in 2009 the company provides it as expenses & a liablity in 2009. In 2010 the employee uses them & hence no longer encashable. Now how is this treated? Is the entry made in the PY reversed..?
22 November 2009
Hi again, since it is short term item, it can go upto 1 year from balance sheet date. further when u make the provision in the year of accrual, you must consider the probability of the employees availing the leave in the next year. say there are 200 employees having salary of Rs. 10000 p.m.further suppose every employee gets a leave of 5 days every year. In the current year he availed the leave of 3 days. the average unused leave entitlement is 2 days per employee.the enterprise expects that in the next year192 employees will not take more than 5 days leave and the remaining 8 employees will take six and half days leave (based on past experience). therefore current provision will be 8 X 1.5 (extra leave) i.e.12 days pay. in the next year when the employees will avail the same the following entry will be passed : Salary A/c Dr. XX Provision for ST benefits A/c Dr. XX To Cash /Bank A/c
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