200536 Intermediate Financial Accounting

Homework Solutions for Tutorial

chapter 11
3.

Comprehension questions
What is the difference between vesting and non-vesting sick leave? How does the recognition
of vesting sick leave differ from the recognition of non-vesting sick leave?
Refer to section 11.4.4. If sick leave is vesting, the employee is entitled to cash settlement for
unused leave. If sick leave is non-vesting, the employee has no entitlement to cash settlement of
unused leave. The employer recognises a liability for accumulating sick leave, measured as the
undiscounted amount expected to be paid. The entity will have good reason to expect that all
vested accumulating sick leave will be paid. However, if sick leave is not vesting, a liability is
recognised for proportion of accumulated sick leave that the entity expects to be taken by its
employees.

11.

The board of directors of Griffith Ltd met in June 2013 and decided to close down a branch
of the companys operations when the lease expired in the following February. The chief
financial officer advised that termination benefits of $2.0 million are likely to be paid. Should
the company recognise a liability for termination benefits in its financial statements for the
year ended June 2013? Justify your judgement with reference to the requirements of AASB
119.
Refer section 11.9. Paragraph 165 of AASB 119 requires an entity to recognise a liability for
termination benefits when the entity can no longer withdraw the offer of the benefits or when the
entity recognises costs for a restructuring that is within the scope of AASB 137 and that involves
the payment of termination benefits. Griffith Ltd should not recognise a liability for termination
benefits in its financial statements for the year ended 30 June 2013 because it has not made an
offer of benefits to employees. This is not a restructure under AASB 137 because no action or
communication has taken place that would give rise to a valid expectation in the employees
affected by the planned closure (refer AASB 137, para. 72).

IFA 200536

Solutions - chap 11

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