- HK Limited has 100 employees. Each employee earns two weeks ofpaid vacation per year. Vacation time not taken in the year earnedcan be carried over to two calendar years. Paid leave is firsttaken out of the balance brought forward from the previous year andthen out of the current year’s entitlement (a FIFO basis). During2019, 30 employees took both weeks’ vacation, but at the end of theyear, 70 employees had vacation time carryover as follows:
Employees | Vacation weeks earned but not taken |
30 | - |
25 | 1 |
45 | 2 |
100 | |
During 2019, theaverage salary for employees is $5,000 perweek. [5 marks]
- The profit sharing plan requires HK Ltd. to pay 2% of its netprofit to its two directors, Mr. Yau Wen and Ms. Shally Tin. Thenet profit for 2019 is $3,500,000. Mr. Wen will receive the bonussix months after the end of 2019, whereas Ms. Tin would be paid onJuly 2021 since she joined the company in March of2019. [5 marks]
- HK Ltd. agrees to pay a fixed contribution of 5% of employees’salary to a retirement plan, subject to a cap of $1,250 per monthfor each employee. The contribution is paid monthly on or beforethe 10th of the following month. Out of the 200 employees, 160employees earn an average monthly salary of $20,000. The remaining employees earn more than $35,000 per month. [5 marks]
Required:
Classify the nature of the employeebenefit(s) above and explain the accounting treatment (providejournal entries if necessary) in accordance with relevant Hong KongAccounting Standard(s).
