What should the balance of the long service leave provision

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Reference no: EM132671650

Problem - Manuka Ltd has seven employees who are entitled to long service leave (LSL). The LSL can be taken after 15 years of service, at which time the employee is entitled to 13 weeks' leave. After 10 years the employee is entitled to a pro rata cash payment on leaving the company. Information about the employees is set out below:

No. of employees	Current salary per employee	Years of service	Probability % that LSL will be paid
2	60,000	5	35
3	40,000	9	95
2	70,000	12	100

Other information collected.

Periods to maturity	Corporate bond rate (%)	Risk-adjusted discount rate for Manuka Ltd (%)
8	7.50	9.00
5	6.25	8.00
4	6.00	7.25
1	4.50	5.50

The inflation rate for the foreseeable future is 2 per cent. The future salaries of the employees are expected to keep pace with inflation but not increase as a result of promotion. Based on the information provided, what should the balance of the long service leave provision account be (rounded to the nearest dollar)?

Reference no: EM132671650

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