CERTYNEX IFRS ACADEMY

Garnel SA has paid for eight years an annual bonus equal to one month's salary, announced in December by an internal note, with no contractual clause or written commitment. In N, the board decided no withdrawal and management is not considering one; the formula (one month's salary) is known (case facts). Which conclusion is correct at the end of N?

There is no obligation, for lack of a contractual clause or written commitment: the bonus will be recognised when paid, in the following year, whatever Garnel's practice over the eight years.

The obligation arises when the board votes the amount of the bonus, after the reporting date; before that vote, the bonus is not a liability and no expense is recognised.

There is a constructive obligation, because the consistent practice leaves Garnel no realistic alternative but to pay the bonus; the cost is recognised if it can be estimated reliably.

A constructive obligation exists, but it is recognised when the bonus is paid, because the bonus is a long-term benefit and not a short-term benefit.