ACCA Advanced Taxation (ATX) Practice Exam

What is a requirement for entitlement to bonuses for directors?

1. Directors must have a fixed contract

2. Payment occurs on the approved date by shareholders

3. Directors must maintain performance targets

4. Payment is deemed based on accounting periods or entitlement

The correct answer is: Payment is deemed based on accounting periods or entitlement

The entitlement to bonuses for directors generally hinges on the concept of payment being tied to accounting periods or established criteria of entitlement. Bonuses are often structured based on the company's performance over a specific accounting period, which reflects the overall financial health and profitability of the organization. This approach ensures that the bonuses are aligned with the interests of shareholders and the successful operation of the business. Incorporating accounting periods provides a clear and measurable timeframe for assessing performance and determining bonus eligibility. This method highlights the company's ability to reward directors for contributing to its growth and success, making the assessment of performance transparent and equitable. While other factors, such as performance targets or shareholder approval, may influence the bonus structure, they are secondary to this foundational requirement. Payment can occur on specified dates, but the basis of entitlement fundamentally rests on performance within defined timeframes rather than contractual obligations or arbitrary criteria.