QUESTION 3: Employee Benefits (10 marks) On the 1st of July 2010, Swordsy\'s Car
ID: 2411394 • Letter: Q
Question
QUESTION 3: Employee Benefits (10 marks) On the 1st of July 2010, Swordsy's Caravan Park has 12 employees working for them. Three years later these 12 employees are all still employed. On the 1t of July 2012 Swordsy's Caravan Park hires another 15 employees but of these, five are no longer working for Swordsy's Caravan Park on the 30th June 2013. Swordsy's Caravan Park has long service leave (LSL) arrangements in place for its staff. Swordsy's Caravan Park provides 13 weeks' leave after an employee has worked 10 years for the company. Additional Information, current at the 30 June 2013 is as follows: . . · . Aggregate salary of all employees hired on 1 July 2010 is $600,000 Aggregate salary of all current employees hired on 1 July 2012 is $400,000 Probability of employees hired on 1 July 2010 working until LSL earned: 40% Probability of employees hired on 1 July 2012 working until LSL earned: 20% Salaries are expected to increase at 1% pa. The opening balance of LSL for the year ended 30 June 2013 is $6000. Corporate Bond Rates Maturing In (years) Rate as at 1 July 2012 Rate as at 30 June 2013 dus canG 7 8 9 10 4% 5% 5% 6% 6% 8% 8% 10% file Required: (a) What is the total LSL provision as at 30 June 2013? Please show all workings. 8 marksExplanation / Answer
For employees hired on July 01, 2010
Year
(A): Salary
(B): 13 week salary (A x 13/52)
Probability (%)
©: LSL provision (B x Probability %)
(D): Discounting rate @6% pa.
Present value of LSL provision (C x D)
2010-11
600000
150000
40%
60000
0.943396
56603.77
2011-12
(600000 x 101%)
606000
151500
40%
60600
0.889996
53933.78
2012-13
(606000 x 101%)
612060
153015
40%
61206
0.751315
45984.97
LSL provision for employees of 2010
156522.5
For employees hired on July 01, 2012
Year
(A): Salary
(B): 13 week salary (A x 13/52)
Probability (%)
©: LSL provision (B x Probability %)
(D): Discounting rate @6% pa.
Present value of LSL provision (C x D)
2012-13
400000
100000
40%
40000
0.909091
36363.64
LSL provision for employees of 2012
36363.64
Total provision for LSL (156522.5 + 36363.64)
192886.2
Thus, the total LSL provision for as at 30th June, 2013 is $192,886.20.
Note: The rate of discount till year 2011-12 has been used 6% per annum as the 10 year corporate bond rate as on 1st July, 2012 was 6%. However for the year 2012-13 the rate of discount has been used at 10% per annum as the 10 year corporate bond rate as on 30th June, 2013 is 10%.
For employees hired on July 01, 2010
Year
(A): Salary
(B): 13 week salary (A x 13/52)
Probability (%)
©: LSL provision (B x Probability %)
(D): Discounting rate @6% pa.
Present value of LSL provision (C x D)
2010-11
600000
150000
40%
60000
0.943396
56603.77
2011-12
(600000 x 101%)
606000
151500
40%
60600
0.889996
53933.78
2012-13
(606000 x 101%)
612060
153015
40%
61206
0.751315
45984.97
LSL provision for employees of 2010
156522.5