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CA Intermediate · Advanced Accounting · AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets

Himalaya Foods Ltd. decided on 20 March 2026 to close a factory. A detailed formal plan was approved by the board and, before 31 March 2026, was announced to the affected employees. Expected costs: employee termination Rs 18 lakh, retraining of continuing staff Rs 6 lakh, relocation of machinery to other plants Rs 9 lakh, and expected future operating losses till closure Rs 5 lakh. What restructuring provision should be recognised at 31 March 2026?

The provision is Rs 18 lakh. Since a constructive obligation exists from the announced plan, only direct costs of restructuring such as employee termination payments are provided. Retraining, relocation of machinery and future operating losses relate to ongoing activities and cannot be included under AS 29.

  1. ARs 18 lakhCorrect
  2. BRs 24 lakh
  3. CRs 33 lakh
  4. DRs 38 lakh

Explanation

A restructuring provision includes only direct expenditure necessarily entailed by the restructuring and not associated with ongoing activities. Termination costs of Rs 18 lakh qualify. Retraining, relocation and future operating losses relate to continuing activities or future operations and are excluded. Rs 24 lakh wrongly adds retraining; Rs 33 lakh adds relocation too; Rs 38 lakh adds everything.

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