UK Reversal - bonus accrual

[cmdall]

Hi, In Y1 bonus was accrued for the period (dr Expenses Cr accrual). Beginning Y2, bonus was not paid. so Reversal was done Cr.Expenses and Dr.Accrual. But the Expenses account has negative balance, so income and retained earning shall be adjusted as well? thanks

 

[Fidget]

This sounds a bit dodgy to me. Why was the bonus accrued for at the end of Y1 if it wasn't going to be paid out at the beginning of year 2?

 

[Steve-LevelUp]

I have seen this happen before. We booked a general accrual for executive bonus that ended up being cut in half. This did result in a negative expense. This was generally covered by the following year bonus accrual.

From a tax perspective, they will disallow the entire deduction if it wasn't paid within a certain period of time anyway, (5-6 months I believe) so it will not impact your taxes.

With regards to re-stating the past, that is really a matter for the board to decide. Do you operate in a culture where this issue is well known and restating the prior year is appropriate? Or is last year "done" in which case, it is better to record it in the current year. Materiality plays a factor too. The more material the bigger likelihood that you should re-state the prior year.. I feel as though hiding it in Retained Earnings without formally restating the prior year might make things look strange.

So, you have a few options.

Let me know if you have any other questions.