ACCA FR · Chapter 8 · Question 3 of 10
Coot Co has a constructive obligation to restructure a division. Estimated costs are: redundancy payments $800,000, retraining continuing staff $200,000, relocating continuing staff $150,000, penalties for cancelling leases of premises that will be vacated $100,000, and expected future operating losses of the division until closure $300,000. What restructuring provision should be recognised?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $900,000
Explanation
A restructuring provision includes only direct expenditure that is necessarily caused by the restructuring and not associated with the entity's continuing activities. Redundancy $800,000 + lease cancellation penalties $100,000 = $900,000. Retraining and relocating continuing staff relate to future operations, and future operating losses cannot be provided for.
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