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Bonus payment

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Bonus payment

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 8, 2017 at 8:59 am #371573
    quangtuan
    Member
    • Topics: 5
    • Replies: 5
    • ☆

    Dear Sir,

    This question may be not within the F7 scope but I need your help.
    This is the real situation of our company.

    In 2013, based on ShareHolders’s resolution, we appropriated a bonus fund from retained earning, this fund is an item in Equity.This fund is to pay bonus to our staff.
    In 2014, we used a part of this fund to pay for our staff.
    In 2015, external audit had an opinion that due to IAS 19, staff benefit must be recognized as expense so that we can not pay bonus from that bonus fund which is appropriated from retained earning.
    I would like to ask you for the treatment for this issue.
    Thank you!

    February 8, 2017 at 9:21 am #371579
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    Whenever a cash payment is made (and it matters not whether it is in respect of a bonus, a window cleaning expense or settlement of Rapunzel’s hair-dresser’s charges) the credit entry has to be to a cash or bank account

    Further, a bonus paid to employees is correctly identified by your external auditors as an expense

    So there we have the double entry Dr Wages and Salaries Cr Cash / Bank

    Now, what to do about this element of equity – the Bonus Fund?

    As an element of equity and one that has arrived as a result of an appropriation of retained earnings, I have to assume that this is a credit balance.

    But it seems to me that some or all of this reserve is now no longer required so it seems appropriate that it should in full or in part be transferred back into Retained earnings

    This would be simply achieved by effecting a transfer through the statement of changes in equity – Dr Bonus Fund Reserve Cr Retained earnings

    Can you please let me have the company’s full name, address and company number so that I have all the details necessary for my invoice for professional services (beyond the scope of the underlying reasons for OpenTuition’s mission statement)

    Thanks

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