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Provision for diwali bonus

29 December 2013

hi everyone! At the company where i am in audit, they make payment to labour contractors for diwali bonus. For the same they are making provision every month from the start of FY. Is it valid to make such provision? Please clarify me with refrence to necessary provisions of AS.

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3 Replies

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 06 January 2014

Dear Satish,

Verify whether they are paying Bonus to Labors in previous years regularly. If Yes, then this kind of expenses are ok as management has clear intention to pay bonus to its labors which they are following in previous years also.

Satish Raj Pahari (Article) (35 Points)
Replied 09 January 2014

yes, they have a policy of paying bonus(extra payment) to contract labours at diwali time. However, they are making provision in equal monthly installments from the beginning of FY. My query is, as such payment becomes our liability only on diwali so isn't making sucha provision against as-29. Further since it is a listed company, won't its quaterly financial statement be deviated?

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 09 January 2014

Dear Satish,

Agreed from your point but think that way also liability will create on diwali but bonus paid is based on annual performance done by labors through out the year thats why I think making provision for bonus on monthly basis is correct.

Provision for end service benefit...... Liability is created at the time when employee leave the company but remuneration is earned by employee through out the service life within the comapny thats why we create provision for end service benefit annualy.

Diwali bonus is almost same thing but at micro level.