**Accrual of Liability for Employees' Compensation under ASC 710-10-25-1**Under ASC 710-10-25-1, an employer is required to accrue a liability for employees' compensation concerning future absences if all the following conditions are satisfied:1. **Obligation Tied to Past Services**: The employer's obligation concerning employees' rights to compensation for future absences must be directly linked to the employees’ past services.2. **Vesting or Accumulation of Absences**: The paid absence can be taken in a future year. This means the benefit is vested (the employee will be compensated even if their employment ends) or the benefits can accrue over time.3. **Probability of Payment**: It should be likely that such compensation will indeed be paid.4. **Reasonable Estimation**: The amount of the compensation can be reasonably estimated.If the amount cannot be reasonably estimated, the employer must take specific actions:- **Accrual on Balance Sheet**: The employer should accrue a liability on the balance sheet. This option is highlighted as the correct response.**Answer Options Provided**:- None of the other answers are correct.- There is no need to disclose it.- The employer shall accrue a liability in the balance sheet. *(Correct Answer)*- The employer shall disclose it in the notes to financial statements.

A liability shall be accrued if it is to be settled in the near future.

Answered: liability for employees' compensation…

Business

Accounting

liability for employees' compensation for future

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**Accrual of Liability for Employees' Compensation under ASC 710-10-25-1**

Under ASC 710-10-25-1, an employer is required to accrue a liability for employees' compensation concerning future absences if all the following conditions are satisfied:

1. **Obligation Tied to Past Services**: The employer's obligation concerning employees' rights to compensation for future absences must be directly linked to the employees’ past services.

2. **Vesting or Accumulation of Absences**: The paid absence can be taken in a future year. This means the benefit is vested (the employee will be compensated even if their employment ends) or the benefits can accrue over time.

3. **Probability of Payment**: It should be likely that such compensation will indeed be paid.

4. **Reasonable Estimation**: The amount of the compensation can be reasonably estimated.

If the amount cannot be reasonably estimated, the employer must take specific actions:

- **Accrual on Balance Sheet**: The employer should accrue a liability on the balance sheet. This option is highlighted as the correct response.

**Answer Options Provided**:
- None of the other answers are correct.
- There is no need to disclose it.
- The employer shall accrue a liability in the balance sheet. *(Correct Answer)*
- The employer shall disclose it in the notes to financial statements.

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