May and Mary are good friends and their hobbies is making wedding cakes. They started their business M&M Wedding Cakes on 1 July 2016. May and Mary bought their shop in December 2016. Mary’s cousin, Ada visited her in February 2018. Ada worked in M&M Wedding Cakes for three months on Working Holidays visa.
The following information was obtained for M&M Wedding Cakes for the year ended 30 June 2018.
Wages and administrative expenses
|
$315,000
|
Cost of goods sold
|
706,000
|
Gain on shop revaluation
|
70,000
|
Gain on sale of an oven
|
5,500
|
Income tax expense for current year
|
116,000
|
Losses on investments in equity instruments
|
11,600
|
Net sales revenue
|
1,490,000
|
Selling and distribution expenses
|
45,000
|
Uninsured fire loss
|
26,000
|
Depreciation of non-current assets
|
8,000
|
Finance cost
|
2,400
|
M&M Wedding Cakes accounts for all recognized employee costs as expenses. Employees are entitled to 13 weeks of long service leave after 10 years of employment.
The following information listed is at 30 June 2017
Number of employees 3
Average salaries $45,000 p.a.
Number of years until credit 1 year
Number of years until long service leave is expected to be paid 9 years Probability that long service leave will be taken 40%
Expected increase in salaries 2.5% p.a.
Yield on 9-year high-quality corporate bonds at 30/6/2017 6.5% The following information listed is at 30 June 2018
Number of employees 5
Average salaries $46,000 p.a.
Number of years until credit 2 years
Number of years until long service leave is expected to be paid 8 years Probability that long service leave will be taken 60%
Expected increase in salaries 2.6% p.a.
Yield on 8-year high-quality corporate bonds at 30/6/2018 5.5%
Required
1.
Calculate the long-service leave obligation for M&M Wedding Cakes as at 30 June 2017, applying the projected unit credit method in accordance with AASB 119/IAS 19 and prepare the journal entry to account for changes in the provision for long service leave.
2.
Using the same method listed in Requirement 4 above, calculate the long-service leave obligation for M&M Wedding Cakes as at 30 June 2018 and prepare the journal entry to account for changes in the provision for long service leave.