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ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Zeta plc prepares condensed interim financial statements for the six months ended 30 June 20X5 under IAS 34. Annual bonuses to staff are contractually based on full-year profit and are expected to total $1.2 million for the year, accruing evenly. Which treatment is correct in the interim report?

Zeta should recognise $0.6 million in the half-year. IAS 34 applies the same recognition principles as annual reporting, and an expected bonus that is a present obligation accrues as service is provided, so half the annual $1.2 million belongs to the first six months.

  1. ARecognise $0.6 million in the half-year because the obligation accrues evenly and the constructive obligation exists at the interim dateCorrect
  2. BRecognise nothing until the year-end because bonuses are determined only at the year-end
  3. CRecognise the full $1.2 million in the half-year to be prudent
  4. DDisclose $1.2 million as a contingent liability and recognise nothing in profit or loss

Explanation

IAS 34 requires the same recognition and measurement principles as annual statements, and the interim period is treated as an integral part of the year. A bonus that meets the IAS 19 criteria for a present obligation is accrued as the service is rendered, so half of $1.2 million, i.e. $0.6 million, is recognised. Deferring all of it or recognising all of it misstates the half-year result.

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