Year-end closing is a critical process for any business, as it ensures that financial statements present a true and fair view of the company’s financial position. One of the most important aspects of year-end closing is identifying, calculating, and recording necessary provisions and adjustments in accordance with accounting standards and applicable laws.

This blog provides an overview of common year-end provisions and calculations, including depreciation, employee benefits, and other key adjustments required at year-end.

Revenue Cut-Off and Deferred Revenue (IFRS 15)

At year-end, businesses must ensure:

• Revenue should be recognized only when it is earned, not when cash is received.
• Income must be recorded in the correct accounting period to ensure proper cut-off at year-end.
• Advances or prepayments received for services not yet provided should be recorded as Deferred Revenue (contract liabilities).
• Deferred Revenue is recognized as income only when the related service is performed.
• This is particularly important for service-based businesses, where revenue is often earned over time.

Unbilled Revenue (IFRS 15)

Unbilled revenue arises when goods or services have been delivered to a customer, but an invoice has not yet been issued by the reporting date. Even though billing is pending, the revenue has already been earned and should be recognized in the current period.

• Unbilled revenue is recorded as a contract asset under IFRS 15.
• Revenue is recognized based on the performance obligation being satisfied, not on invoicing.
• It commonly occurs in service-based or project-based businesses where billing is done periodically.
• Once the invoice is raised, unbilled revenue is reclassified to trade receivables.
• Proper recognition ensures revenue is not understated at year-end.

Journal Entry

Dr Contract Asset (Unbilled Revenue)
Cr Revenue

Provision for End-of-Service Gratuity (UAE Labour Law)

Under UAE Labour Law, employers are required to provide end-of-service gratuity to eligible employees upon termination of employment.

Basic Calculation (Simplified)

• 21 days’ basic salary for each of the first 5 years
• 30 days’ basic salary for each additional year

Gratuity is calculated only on basic salary, not allowances.

Year-End Provision

At year-end, businesses must recognize a provision for gratuity based on employees completed service period, even though payment will be made in the future.

Why it matters

• Reflects future employee obligations
• Prevents understatement of liabilities
• Ensures compliance with IAS 19 / IAS 37 principles

Journal Entry

Dr End-of-Service Gratuity Expense
Cr Provision for End-of-Service Gratuity

Provision for Leave Salary

Employees are entitled to paid annual leave, and unused leave accumulates overtime.

Year-End Treatment

• Calculate unused leave days for each employee
• Multiply by daily salary rate
• Record provision as a liability

Benefit

• Accurately reflects employee-related obligations
• Avoids large expense recognition in future periods

Journal Entry

Dr Leave Salary Expense
Cr Provision for Leave Salary

Accrued Expenses

Accrued expenses are costs incurred during the financial year but not yet paid or invoiced.

Common Examples

• Utilities
• Professional fees
• Rent or service charges

Why accruals are required

• Follows the accrual basis of accounting
• Matches expenses with the period to which they relate
• Ensures accurate profit calculation

Journal Entry

Dr Expense
Cr Accrued Expenses (Liability)

Provision for Doubtful Debts (IFRS 9 – Expected Credit Loss)

Businesses must assess whether all receivables are recoverable.

Year-End Assessment

• Review aging of receivables
• Identify long outstanding or disputed balances
• Create provision based on expected credit loss

Purpose

• Prevents overstatement of assets
• Reflects realistic receivable values

Journal Entry

Dr Impairment Loss (P&L)
 Cr Allowance for Expected Credit Loss (ECL)

Provisions for Expenses and Obligations (IAS 37)

A provision should be recognized when a business has a present obligation arising from past events, and the amount can be reasonably estimated, even if the exact timing or value is uncertain. This helps ensure that expenses relating to the current period are not understated.

Examples:

• Audit fees relating to the current financial year
• Contractual maintenance and repair obligations
• Restoration or dismantling obligations under lease agreements
• Legal or regulatory obligations requiring future expenditure

Journal Entry

Dr Expense (P&L)
Cr Provision (Liability)

Inventory Valuation (IAS 2)

Inventory must be valued at the lower of cost and net realizable value (NRV).

Year-End Checks

• Identify slow-moving or obsolete stock
• Write down inventory where NRV is lower than cost

VAT Payable and Input VAT Reconciliation

At year-end, businesses should reconcile:

• Output VAT
• Input VAT
• VAT payable or refundable balance

Key Checks

• Ensure all VAT returns are filed
• Confirm VAT balances agree with general ledger
• Review unrecoverable input VAT, if any

Corporate Tax Provision (UAE CT Law)

With the introduction of UAE Corporate Tax, businesses must assess their taxable profit at year-end.

Year-End Actions

• Adjust accounting profit for non-deductible expenses
• Apply applicable CT rate
• Recognize Corporate Tax Provision as a liability

Importance

• Ensures compliance with UAE CT regulations
• Avoids under- or overstatement of tax liabilities

Prepayments

Prepayments represent expenses paid in advance for goods or services that will be received in a future accounting period. At year-end, these amounts should not be treated as expenses immediately but recognized as assets until the benefit is actually consumed.

• Prepayments are recorded as current assets in the statement of financial position.
• Only the portion relating to the current period should be recognized as an expense.
• The remaining balance is carried forward and expensed in future periods.
• Common examples include prepaid rent, insurance, and subscriptions.
• Proper treatment of prepayments ensures expenses are matched with the period in which they are incurred.

Journal Entry

Dr Prepaid Expense (Asset)
Cr Cash / Bank

Depreciation (IAS 16 – Property, Plant & Equipment)

Depreciation represents the systematic allocation of the cost of a fixed asset over its useful life.

What assets are depreciated?

• Furniture and fittings
• Office equipment
• Machinery
• Computers and electronic devices

How is depreciation calculated?

The most used method is the Straight-Line Method (SLM):

Depreciation = (Cost of Asset – Residual Value) ÷ Useful Life

Year-End Importance

• Ensures asset values are not overstated
• Matches asset cost with the period benefiting from its use

Comply with IAS 16 requirements

Journal Entry

Dr Depreciation Expense
Cr Accumulated Depreciation

Events After the Reporting Period

Events after the reporting period are events that occur between the reporting date and the date the financial statements are authorized for issue. These events may require adjustment or disclosure to ensure the financial statements reflect accurate and relevant information.

• Adjusting events provide evidence of conditions that existed at the reporting date and require adjustments to the financial statements.
• Non-adjusting events indicate conditions that arose after the reporting date and do not require adjustment but may require disclosure.
• Proper evaluation of such events ensures financial statements are not misleading.
• Disclosure of material non-adjusting events helps users understand their potential impact.

Conclusion

Year-end provisions, accruals, and tax adjustments are essential to ensure accurate financial reporting and compliance with accounting standards and UAE tax laws. Proper consideration of depreciation, employee benefits, accruals, VAT, and Corporate Tax helps businesses reduce audit risks, avoid penalties, and make informed financial decisions.

A structured and timely year-end closing process strengthens financial transparency and builds confidence among management, auditors, and regulatory authorities.