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provision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › provision

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by MikeLittle.
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  • December 23, 2015 at 3:49 pm #292644
    yushanshan
    Member
    • Topics: 84
    • Replies: 70
    • ☆☆

    Hi sir,
    I have trouble understanding the reason why the two conditions belong to provision as followed.
    1 A company is leasing an office building for which it has no further use. However , it is tied into the lease for another year.
    2 A company is closing down a division . The Board has prepared detailed closure plans which have been communicated to customers and employees.

    December 23, 2015 at 10:04 pm #292676
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    In the first case, the company has a definite obligation – no question! So need to provide for a further year’s rent UNLESS there is a very good chance that the company may be able to sub-let

    There is a definite obligation – they have announced the closure and raised in the minds of those affected the valid expectation that the closure will go ahead

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