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AS 29 + AS 4

Accountancy

XYZ Ltd paid Diwali Bonus, as a customary practice, to its employees totalling Rs 50 Lacs in 2019. As it is a usual practice, and as the entity will have to pay again next year, the managemnet decided to make a provision for the same of Rs 50 Lacs in Nov, 2019. In May, 2020, 2 months before date of FS approval, the management realized that as the number of employees increased since the provision was made in Nov, it will have to pay more bonus. As per management's judgment, 5% increase in bonus payment is estimated. Is the entity's decision to make provision in accordance with AS 29? Should the entity recognized, if at all, the 5% increase as provision in 2020 or 2019? Please comment, Sir.

Kumarjit Dey

CA Inter

★ 4K+

29-Nov-20 10:42

267

Answers (3)

Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise from normal business practice, custom. You need to see whether incrsease in employees is during 2019-20 or 2020-21.