Question
You are a senior auditor at Street Partners and are currently trying to understand the accounting treatment of the following material events for one of
You are a senior auditor at Street Partners and are currently trying to understand the accounting treatment of the following material events for one of your main clients, Green Ltd., a manufacturer and wholesaler of building equipment.
Greens timeline: Year end: 30 June 2021 Date of auditor report: 16 September 2021 Date of directors declaration: 16 September 2021 |
Event Greens employment contracts do not require them to pay performance bonuses but do state that the directors can exercise their discretion to pay performance bonuses after the net profit before taxes has been determined. On 1 September 2021, after the profit before taxes was determined the directors passed a resolution to reward employees with a performance bonus in respect of the 2021 financial year. The bonuses were paid on 5 September 2021 and were included in the draft financial report.
Required:
For the above event: (a) identify whether the accounting treatment is correct for the year ended 30 June 2021 (1 mark) (b) justify your response (2 marks) (c) if the accounting treatment is not correct, identify the correct treatment (1 mark)
Write your answer in answer booklet, using the following table format.
(a) Accounting treatment correct? [Yes or No] (1 mark) | (b) Justification (2 marks)
| (c) Correct accounting treatment (1 mark) if correction is needed what will you request management to do |
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