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Rainbird decided to reorganize manufacturing facility during Nov 20X1 and commissioned consulting engineer to carry out a feasibility study. A provision for reorganziation was created at 31 dec 20×1.
Rainbird accountant is preparing financial statement for year to 31 dec 20X1 and is not too sure about provision setup for reorganization of the facility.
Sir in answer they have stated that provision should not be created for reorganization. Can you please me this why?
There is no present obligation. In order to create the provision it must have a detailed formal plan in place or it has been communicated to the employees involved.
Sir I know that in order to create provision there must be a detailed formal plan and a valid expectation is created through announcement or by starting restructuring.
So here in Question as is it mentioned that commissioned consulting engineer to carry out a feasibility study, so isn’t this mean that restructuring has started?
It is a feasibility study and the results of this will determine whether there is any obligation. As it stands, there is no obligation.