[nhungnguyen6710]

Hi Stephen,
I would like to refer one question in Sep’18/exam :

1. Question:
Sale of Newall
At 30 June 20X8 Farham had a plan to sell its 80% subsidiary Newall. This plan has been approved by the board and reported in the media. It is expected that Oldcastle, an entity which currently owns the other 20% of Newall, will acquire the 80% equity interest. The sale is expected to be complete by December 20X8. Newall is expected to have substantial trading losses in the period up to the sale. The accountant of Farham wishes to show Newall as held for sale in the consolidated financial statements and to create a restructuring provision to include the expected costs of disposal and future trading losses. The COO does not wish Newall to be disclosed as held for sale nor to provide for the expected losses. The COO is concerned as to how this may affect the sales price and would almost certainly mean bonus targets would not be met. The COO has argued that they have a duty to secure a high sales price to maximise the return for shareholders of Farham. She has also implied that the accountant may lose his job if he were to put such a provision in the financial statements. The expected costs from the sale are as follows:
Future trading losses $30 million
Various legal costs of sale $2 million
Redundancy costs for Newall employees $5 million
Impairment losses on owned assets $8 million
Included within the future trading losses is an early payment penalty of $6 million for a leased asset which is deemed surplus to requirements.

-> I think the situation here is considered as one example of a restructuring that involves a sale of an operation. At the financial year end, no binding sale agreement has been signed, therefore, if following the quote above, no restructuring provision should be made. However, the answer by the examination team is that provision is still be created. Can you please help advise in this specific case?

thank you
Brs,
nhung Nguyen

[nhungnguyen6710]

Hi Ikmughai
I think loan notes are a financial liability under IFRS9, therefore, if the entity is not holding them for trading, they should be subsequently measured at amortised costs. For amortised cost model, interests are added to and payments are deducted from the carrying amount of the loan notes

It’s my opinion

[nhungnguyen6710]

Hi Iukayl,
Yes, it will be deducted from the service costs in the year but under the heading of “Past service costs” in profit or loss.

[nhungnguyen6710]

Hi Iukayl
I think the instance you mentioned is an amendment rather than a curtailment because IAS19 defines “A curtailment is a significant reduction by the entity in the number of employees covered by the plan”. In this case, it is an amendment to improve employee’s benefits.

Regarding your 2nd question, an amendment will result in an increase or a decrease in the present value of the defined benefit obligation. Thus, a past service cost which may be positive or negative amount, will be charged to profit or loss in the year of amendment occurs

As regards your 1st question, my opinion is that the plan obligation is to exchange for services provided employees, therefore, although the vesting period is 5 years, expenses must be accrued during the time the services are provided, not when they complete 5 year service. Therefore, past service costs resulting from the amendment associated with less than 5 year service emloyees must be recognised in the amendment year

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