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Accrued annual leaves (lapsing)
02-18-2009, 04:51 AM,
#1
Accrued annual leaves (lapsing)
as far as i know.......in case of annual leaves (paid leaves) which lapse in year 2
......

we create provision for unavailed leaves at year end 20x1......

last drawn per day salary of 20x1 x no of unavailed leaves

Leave exp Dr.
Provision for annual leaves Cr.

now...if in the year 20x2.......an employee opts to encashe the leaves.......what entry will be passed???


Secondly...

when the person is being paid the cash for unavailed leaves in 20x2 for the leaves earned in 20x1....what salary will be used for calculation of payment??
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02-21-2009, 04:17 PM,
#2
 
anybody??
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02-21-2009, 05:50 PM,
#3
 
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.
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02-23-2009, 03:33 PM,
#4
 
Kamran,

If organization is the company, is it required to get the services of actuary for the valuation of its obligation of leave encashment????


Regards,

*
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02-23-2009, 06:23 PM,
#5
 

Star,

It depends upon what corporate status it has under 4th or 5th Scedule to the Companies Ordinance 1984 and what structure of compensated absences it has for its employees.

First thing is the structure/nature of benefit. If one years leave are paid in next year without any alteration or accumulation, no actuarial valuation is required, regardless of whatever entity it is.

However, if leaves have to be accumulated over certain numberof years, or until the final retirement or LPR, or after one or more years with some revision to latest salary etc then actuarial valuation is required. Now which entities are obliged to get actuarial valuation and which are not is the second question in this scenario.

All listed companies have to comply with IFRSs (notified by SECP), so all listed companies and the companies to which 4th schedule applies will have to get the valuation done. You may appreciate that 4th schedule applies on listed companies as well as their subsidiaries.

In case of unlisted public companies or private limited companies, we have to take guidance from the relevant reporting frameworks. 5th scheduel to the CO84 defined three types of entities i.e. significant entities, medium sized entities and small sized entities by specifying the criteria to establish which company falls under what category.

Significant entities are obliged to follow all IFRSs/IASs, so they are also obliged to get the actuarial valuation done, if it is required.

Medium sized entities are not forced to follow IFRSs/IASs although these are encouraged to do so. However, the local standard developed by ICAP and notified by SECP for such entities encourages with all the emphasis to get the actuarial valuation done wherever it is required. However, it also provides some relaxation on certain basis, if the differences are not expected to be substantial.

Small sized entities are neither required not emphasized to follow IFRSs/IASs and the local standard applicable to them does not stipulate any requirement for such actuarial valuations.

However, any entity that wants to follow total IFRSs/IASs (notified by SECP) is always encouraged to do so. While doing so, no entity can make a partial compliance. When financials are disclosed to be compliant of IFRSs (applicable in Pakistan), these have to comply them in all respects.

I hope you will deduce a proper clarification from this scattered post.

Regards,


KAMRAN.
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03-08-2009, 02:57 AM,
#6
 
thank you very much kamran

i also thought the same treatment as u laid out in ur post...

the company is a small sized entity.......but the thing is ...the company is getting the gratuity figure calculated by authorized actuary........whereas the annual leave figure is calculated as i mentioned in my post..

latest salary in yr2 x no of leaves...

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10-18-2010, 09:51 PM,
#7
 
Sir,

I would like to ask you a question regarding provision of annual leave, that how can we provide the unavailed leaves in our books of account, if factory act doesnt allow us to encash the unvailed annual leave except in two cases (i) if a worker is discharged (ii) if having applied for and having refused the holidays, he quits his employement

waiting for reply,

Sarfraz
shirazinpl@gmail.com
Reply
10-23-2010, 08:52 PM,
#8
 
And Kamran knows you can possibly be a spam )

Regards,
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10-23-2010, 09:09 PM,
#9
 
By the way IAS 19 clearly says that actuarial assumptions, and calculations are required for determining the defined benefit obligations. For reference see paragraph 48, 49, 50 and 54 of IAS 19 (2009 edition).

However, IAS 19 states that it encourages, but does not make it mandatory, that qualified actuary should be involved in the determination of all defined benefit retirement obligations.

Usually the companies do not have persons who can perform actuarial calculations and develop accurate assumptions, therefore, independent qualified actuaries are involved for this work.

If a company has such capable staff who can perfrom this task; and the auditors of such company based upon their knolwedge or upon involvment of some expert, are satisfied with their working and results, such calculations may serve the purpose. However, in significant majority of the cases this is a least possibility.

Regards,
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10-26-2010, 05:22 PM,
#10
 
Sir, I am a junior, not a spam,

Thanks for your guidance

with best regards
Shirazi
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10-26-2010, 05:54 PM,
#11
 

Hahaha.........Now it really seems that U r Spam......hala k spam kisi aur ko kaha gya tha......Time Matters !!!

Regards.
Reply
10-26-2010, 07:29 PM,
#12
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Shirazi</i>
<br />Sir, I am a junior, not a spam,

Thanks for your guidance

with best regards
Shirazi
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear

There was a message from some spam that has probably been removed/deleted from the forum by Admin.

My comments were not about you.

Regards,
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