At the year end, Chocolot has, in the past, provided for a bonus payable to its employees
Question:
At the year end, Chocolot has, in the past, provided for a bonus payable to its employees and recorded it as a cost of sales. The bonus is normally paid in March following the year end. The bonus for the year ended 31 December 2020 has not yet been paid and no provision has been made in the financial statements. The CEO, Hugh Ben has told me not to make a provision for the bonus this year because it is not contractual and so Chocolat’s profit for the year should not be reduced by this cost.
Additional information:
A total bonus of £10 million for the year ended 31 December 2020 was paid to Chocolot’s employees on 10th February 2021
a) Using the advance information and the additional information provided above;
Set out and explain the adjustment required to account for the employee bonus at 31 December 2020.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson