Question

Question 2 - Week 6 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

Answer :

(a). The expceted annual sick leave expense for Dainty Ltd (On the basis of average salaries)

56% Employees will take 2 week's sick leave

= $200,000 * 2 * 56%

= $200000 * 2 * 0.56%

= $224000

22% Employees will take 1 week's sick leave

= $200000 * 2 * 22%

= $200000 * 2 * 0.22

= $88000

The annual sick leave expense

= $224000 + $88000

= $312000

(b). To recognise the sick - leave entitlement expenses as it accrues each week

Weekly provision = $312000 / 52 = $6000

Journal Entries

Account title and Explanation	Debit	Credit
Sick leave expense	$6000	-
Provision for sick leave	-	$6000

(c). The entry be to record the employees weekly salary

Daily wage rate = $600 / 5 = $120

Daily PAYG tax = 120*30% = $36

Account Title and Explanation	Debit	Credit
Provision for sick leave [120*2]	$240	-
Salary expense [120*3]	$360	-
PAYG tax payable [36*2]	-	$72
Cash	-	$528