i have the querry about payment of discretionary bonus. in last year, company paid bonus to employees but not provided for Q4 as it was approved and paid after balance sheet date but before approval of accounts by board.
in current year, company has paid the bonus fro Q4 of last year and also provided for it for Q4 in current year which also approved and paid after balance sheet date in line with AS-4 As - Contingencies and Events Occurring After the Balance Sheet Date
Will the bonus paid for last year will be prior period for accounts purpose.
Can company claim the bonus paid for last year in current year return (if shown as priod period item in financial statements) arguing that the actual liability for paying bonus was established in current year as it is descretionary.
Please advise and suggest case laws if any available.
13 October 2011
I think it should be disclosed as a prior period expenditure as the conditions existed at the balance sheet date. It is normally a policy of the company to give bonus to the employees, whether more of less. Just terming the bonus as dicretionary it cannot be said that the conditions did not exist at the balance sheet date. Hence disclose the bonus so paid as prior period expenditure in the account.
The deduction for bonus is allowed on payment basis. The last years bonus paid in the current year (whether or not provided in last year, but expensed off till the time of payment) will be allowed as deduction in the FY in which payment is actually made. For the current year bonus provided but unpaid, deduction is to be claimed in the year of payment.
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