Case: Employees of Suryoday Logistics Ltd are entitled to 12 days of paid leave a year; unused leave can be carried forward for one year only and leave taken is first drawn from the current year's entitlement. At 31 March, each of its 100 employees has on average 2 unused days. Based on past experience, 85 employees are expected to take not more than 12 days next year and the remaining 15 employees will take 13.5 days each. Daily pay is ₹1,500. The liability for accumulating compensated absences under AS 15 is:

Correct answer: A) ₹33,750

Explanation

The liability is measured as the additional amount expected to be paid as a result of the unused entitlement accumulated at the balance sheet date. Since leave is drawn first from the current year's 12 days, the 85 employees taking 12 days or less will not use any carried-forward days. The other 15 employees will each take 13.5 - 12 = 1.5 days out of their 2 carried-forward days. Liability = 15 x 1.5 days x ₹1,500 = ₹33,750. Using all 2 unused days for these 15 employees (₹45,000) or for all employees (₹3,00,000) overstates the expected payment.