02-21-2009, 05:50 PM
Dear,
Your query is regarding 'compensated absences'.
Please note that if you have to accumulate the compensated leaves or its enchasment is solely on the option of employees, and your organization is also a company, you cannot simply make the provisions on the basis of last drawn salary multiplied by number of leaves. Instead, you would be obliged to account for such obligation on the basis of actuarial valuation under IAS 19.
However, if you have a policy to create provision in year 1 and pay the same in year 2 and there is no option or practice of accumulating such payments over the years, you can make the provision on the basis you have mentioned i.e. last salary multiplied with number of paid leaves. I must here mention that in such case you must not revise the provision created in year 1 while making payment in year 2 by revising the salary to latest level. Keep in mind the exact provision of last year has to be paid if you want to avoid actuarial valuation. If your policy requires paying the leaves in year 2 by revising the calculation to latest salary levels, it will again require the actuarial valuation at the end of year 1.
The accounting entry in case where you don't get the actuarial valuation would be as follows
When providing
.........Leave encashment expense (to be grouped in salaries and benefits) (Debit)
................. Provision for compensated absences (Credit)
When paying
..........Provision for compensated absences (Debit)
...........................Cash/Bank (Credit)
Please note, if you are not a company or IFRSs are not applicable then you can use whatever basis to accumulate and pay such leaves without following IAS 19. This will then solely depend on your policy.
Regards,
KAMRAN.
Your query is regarding 'compensated absences'.
Please note that if you have to accumulate the compensated leaves or its enchasment is solely on the option of employees, and your organization is also a company, you cannot simply make the provisions on the basis of last drawn salary multiplied by number of leaves. Instead, you would be obliged to account for such obligation on the basis of actuarial valuation under IAS 19.
However, if you have a policy to create provision in year 1 and pay the same in year 2 and there is no option or practice of accumulating such payments over the years, you can make the provision on the basis you have mentioned i.e. last salary multiplied with number of paid leaves. I must here mention that in such case you must not revise the provision created in year 1 while making payment in year 2 by revising the salary to latest level. Keep in mind the exact provision of last year has to be paid if you want to avoid actuarial valuation. If your policy requires paying the leaves in year 2 by revising the calculation to latest salary levels, it will again require the actuarial valuation at the end of year 1.
The accounting entry in case where you don't get the actuarial valuation would be as follows
When providing
.........Leave encashment expense (to be grouped in salaries and benefits) (Debit)
................. Provision for compensated absences (Credit)
When paying
..........Provision for compensated absences (Debit)
...........................Cash/Bank (Credit)
Please note, if you are not a company or IFRSs are not applicable then you can use whatever basis to accumulate and pay such leaves without following IAS 19. This will then solely depend on your policy.
Regards,
KAMRAN.
