ACCA FR · Chapter 8 · Question 2 of 10
On 15 December the board of Grebe Co approved a detailed formal plan to close a factory. The plan was not communicated to employees or customers until 20 January, after the 31 December year end and before the financial statements were authorised. Should a restructuring provision be recognised at 31 December?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) No, because no constructive obligation existed at 31 December
Explanation
A constructive obligation to restructure arises only when there is a detailed formal plan and the entity has created a valid expectation in those affected, by starting to implement the plan or announcing its main features. At 31 December no announcement had been made, so there was no obligation. The January announcement is a non-adjusting event and may need to be disclosed.
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