Question

Dainty Ltd has an average weekly payroll of $200 000. The employees are entitled to 2 weeks', nonvesting sick leave per annum. Past experience suggests that 56% of employees will take the full 2 weeks' sick leave and 22% will take 1 week's leave each year. The rest of the employees take no sick leave. Required: a) Calculate the expected annual sick-leave expense for Dainty Ltd (on the basis of average salaries). b) Provide the journal entry necessary to recognise the sick-leave entitlement expense as it accrues each week. c) In the current week an employee with a weekly salary of $600 has been off sick for the first time this year. The employee took 2 days off out of her normal 5-day working week. Assuming that PAYG tax is deducted at 30%, what would the entry be to record the employee's weekly salary (round amounts to the nearest dollar)?

Answer 1

a)

Calculation of annual sick - leave expenses:
56% employees will take 2 week's sick leave	$ 200000 * 2 *56%	224000
22% employees will take 1 week's sick leave	$ 200000 * 2 * 22%	88000
		312000

b)

Weekly provison = $312000/52 = $ 6000

Sick leave expense a/c	6000
Provision for sick leave a/c		6000

c)

Daily wage rate = $600/5 = $120

Daily PAYG tax = 120 * 30% = $36.

Provision for sick leave a/c    (120*2)	240
Salary expense a/c   (120*3)	360
PAYG tax payable (36*2)		72
Cash a/c		528