Question

1. Orixy limited is a newly formed private company. The accountant of Orixy believes that provision for long service leave is not essential as it will take seven years before the employees are entitled to the long service leave.

Required

Advise the accountant on whether this approach is acceptable. Explain your answer.     

Answer 1

Solution :

The accountant is correct in his approach to ignore the provision for long service leave.

The employees are entitled for long service leave if they are working with the employer for a long period of time.

Since the company is new, all the employees associated with the company are new and hence they are not eligible for the long service leave.

The employees will be eligible only after 7 years of association with the company. Hence, only after 7 years, the company is bound to make a provision for the long service leave.