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Dear Mr Tutor,
I got a question case from a text book which I would like to receive your explanation:
– Company A manufacture goods and distributed through network of agents. It has year ended 31 December. In October 20X5, it issued a policy which give 1000$ for each agent who reach the sale target for year. At the year end, there are 6 agents met the target. The financial statements were issued at March 20X6.
– In May 20X6, the bonus has not been made and the directors decided that the current policy was too generous. They amended this policy, reducing the amount from 1000$ each to 600$ and requiring 6 eligible agents to commit to continue distribute company’s goods for whole year 20X6 in order to receive the bonus in June 20X6.
– Require: Advise company A how they account for the above transactions in year 20X5 and 20X6.** The question did not state IAS/IFRS needed so I guess it is relevant to IAS 37 (quite sure) and maybe IAS 10?
Thank you in advance!
Hi,
I think it would be more IFRS 2 as opposed to IAS 37 as the payment is for services provided by an employee, so we would be looking at accruing the payment as a short-term benefit.
It would also involve IAS 10 too as we’d need to give consideration to the change in circumstances that has happened between the year end and the date the financial statements are authorised for issue.
Thanks
For the 1st part, I am sorry for my bad English. I translated wrongly the question which is written in local language. It is agency ( separate entity ) not agent. So it is still IAS 37?
For the 2nd part, could you clarify circumstances you mentioned and applicable treatment?
Hi,
If we are making payments to our employees then it will be IFRS 2, if not then it would just be a general application of the accruals concept and I wouldn’t worry about any particular standard. I wouldn’t mention IAS 37 as that is accounting for uncertainty and here there isn’t any uncertainty as we know how much we are to pay.
In the second part then the financial statements were authorised for issue in March 20X6, so we need to consider anything that has happened before this date to see if it is adjusting or non-adjusting. Here the event actually occurred after the date the financial statements were authorised and so would not be considered.
I think going forward it may be easier if you stick to the questions that are given in English so that you don’t need to do any translation. At the end of the day you will presumably be sitting your exam in English so you’d be best practising the questions as you would expect to see them.
Thanks
Thank you for 1st part explanation.
For the 2nd part, as the event of amendment is out of scope of IAS 10, so how we treat this amendment in FS of 20X5 and/or 20X6?
PS: Text book in English is quite tough for me to get all the ideas so that’s why I sometimes refers to IAS/IFRS books written in my mother language 🙂
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