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ACCA Strategic Professional · Strategic Business Reporting (International) · Provisions, contingencies and events after the reporting period

Bramwell Co decides on 15 December 20X5 to close a division. A detailed formal plan was approved by the board, but no announcement was made to employees or customers until 20 January 20X6. Year end is 31 December 20X5. Estimated costs are redundancy $3 million and retraining of retained staff $1 million. What restructuring provision should be recognised at 31 December 20X5?

No provision should be recognised. Bramwell had a board plan but had not announced it or begun implementing it by the year end, so no valid expectation existed in those affected and no constructive obligation arose under IAS 37.

  1. A$4 million
  2. B$3 million
  3. C$1 million
  4. DNilCorrect

Explanation

A restructuring provision requires a constructive obligation, which needs a detailed formal plan and a valid expectation raised in those affected, by starting implementation or announcing the main features, before the year end. Neither occurred by 31 December 20X5, so nothing is recognised. Retraining costs relate to ongoing activities and would be excluded in any case, so $3 million is wrong.

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