Exercises for Employee Benefits

Wednesday, 24 August 2022 10:57 am

Problem 1:

ABC Co. grants all employees two weeks of paid vacation for each full year of employment. Unused vacation time can be
accumulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are taken or
when employment is terminated. There was no employee turnover in 2021. Additional information relating to the year ended
December 31, 2021, is as follows:

Liability for accumulated vacations at 12/31/20 ₱35,000

Pre-2021 accrued vacations taken from 1/1/21 to 9/30/21
(the authorized period for vacations) 20,000
Vacations earned for work in 2021 (adjusted to current rates) 30,000

ABC granted a 10% salary increase to all employees on October 1, 2021, its annual salary increase date. For the year ended
December 31, 2021, ABC should report vacation pay expense of?

SOLUTION:
Liability for accumulated vacation at 12/31/20 ₱35,000
Pre-2021 accrued vacations taken from 1/1/21 to 9/30/21
(the authorized period for vacation) (20,000)
Liability to be carried over to the next period ₱15,000
Multiply by: Increase in salary level in Oct. 2021 0.10
Additional liability due to the increase in salary level ₱1,500
Vacations earned in 2021 (adjusted to current rates) 30,000
Vacation pay expense in 2021 ₱31,500

Problem 2:

DEF Co. grants its managerial employees bonus in the form of profit sharing. Information on operations in 2021 is shown below:
Profit after tax ₱1,000,000
Bonus rate or percentage 10%
Income tax rate 20%

B = Bonus
P = Profit after tax
BR = Bonus rate
TR = Tax rate

1. How much is the bonus “before bonus and before tax?”

SOLUTION:
Convert profit after tax to Profit before tax:
P1,000,000/(1-0.20 ) = P1,250,000

Before Bonus and Tax

B = P x Br
B = P1,250,000 x 0.10
B = P125,000.00

2. How much is the bonus “after bonus and before tax?”

SOLUTION:

B = P113,636.36

3. How much is the bonus “before bonus and after tax?”

SOLUTION:

B = P102,040.81

4. How much is the bonus “after bonus and after tax?”

SOLUTION:

FINACC 6 Page 1
B = P92,592.59

FINACC 6 Page 2