Apple Ltd employs a large number of people. During the year ended 31 December 2021 the company
Question:
Apple Ltd employs a large number of people. During the year ended 31 December 2021 the company paid the following amounts in cash in respect of staff benefits:
N$ | |
Salaries (gross) | 10 000 000 |
Wages (gross) | 14 000 000 |
Paid annual leave (gross) | 2 000 000 |
Paid sick leave (gross) | 1 000 000 |
Employer's contribution to defined contribution plan | 2 025 000 |
29 025 000 |
Additional information:
1. The company has, since its incorporation, paid bonuses to its employees provided they are employed throughout a financial year. Experience has shown that these bonuses are calculated using the following formula:
Total salaries and wages of employees that remained in service throughout the year ] x 7½ %
During the current year, staff turnover was such that 90% of the total salaries paid in respect of 2021 could be attributed to qualifying employees, while only 80% of wages paid in respect of 2021 could be attributed to employees qualifying for the bonus.
2. The management of Apple Ltd is of the opinion that economic circumstances in 2022 will be very unfavourable due to the instability of the currencies of developing countries and expect that interest rates could increase sharply during 2022. Consequently they have decided not to pay any bonuses to employees at the end of 2021. The human resources manager is of the opinion that this should not create problems as the bonuses were not specified in the contracts of employment entered into with the employees.
3. The employees’ trade union heard rumours of the possibility of bonuses not being paid and are preparing for a prolonged strike as the remuneration paid by Apple Ltd is approximately 7½ % below the salaries and wages paid to persons employed in the industry in which the company operates.
4. The current balance on the bonus obligation is N$nil.
REQUIRED:
Critically discuss the intention of management not to recognise a liability for any bonuses on 31 December 2021 in accordance with International Financial Reporting Standards (IFRS).
Note: A discussion of the definition of short-term employee benefits and their general measurement criteria is required.
Expert Answer:
1 The definition of shortterm employee benefits and their general measurement criteria Shortterm emp... View the full answer
