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In June 2015 question “Kutchen” –
1.Part d, says there was no formal announcement, but board has approved restructuring and agreed to pay employees. I understand that the intent to restructure is there, but since they have not “formally announced” restructuring why should one recognize the provision of $6Mn ? Again if no provision is recognized, there is no faithful representation and it could have ethical consequences (like Director telling you not to recognize for keeping share price high etc). I am confused as to how does one exactly determine provision recognition. commencement of restructuring/board approval is just enough ? This could come as a smaller question. Hence my query.
2. Part e – Kutchen is in the business of manufacturing equipment for lease or sale. Why then does it Credit PPE and not Inventory when it derecognized the asset upon recognizing Revenue/Lease receivable. This was not a captive asset and PPE should never have been recognized in the first place.
Thanks,
Hi,
1. To create the obligation the restructuring needs to have been either announced or commenced. Here is has commenced, so even though it has not been announced, there is the creation of the obligation.
2. As the asset was leased then it will originally have been recognised in PPE as it is for continuing use within the business. Only if it was to be sold would it have been held in inventory.
Thanks
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