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CA Final · Financial Reporting · Ind AS 10 Events after the Reporting Period

Rao Engineering Ltd. has a reporting date of 31 March 2026, and its Board approved the financial statements on 22 May 2026. At 31 March 2026 it had a 3-year bonus plan under which employees receive a bonus based on profit, and the company had a constructive obligation to pay it. The profit-based bonus was estimated at Rs 18 lakh in the books. On 10 May 2026, after the final audited profit was determined, the actual bonus was fixed at Rs 21 lakh. What is the correct treatment?

Rao should increase the bonus provision by Rs 3 lakh in the year ended 31 March 2026. The obligation existed at the reporting date, and the later determination of the amount is an adjusting event, so the shortfall of 21 minus 18 lakh is recognised.

  1. AMake no change, and recognise the extra Rs 3 lakh in the next year's statements
  2. BAdjust the provision by Rs 3 lakh in the year ended 31 March 2026, because the amount was determined after the reporting period for an obligation existing at that dateCorrect
  3. CAdjust the provision by the full Rs 21 lakh as a new provision
  4. DDisclose the Rs 3 lakh as a non-adjusting event only

Explanation

Determining after the reporting period the amount of a bonus when a present legal or constructive obligation existed at the reporting date is an adjusting event. Already recognised is Rs 18 lakh, so the additional Rs 3 lakh (21 - 18) is recognised in the year ended 31 March 2026. Recognising the full Rs 21 lakh again would double count.

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