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Hi sir i just wanna check whether my understanding is correct on the following.
Situation) A law was introduced in November 20X4 requiring Hermione to fit new smoke filters in its factory by Febuary 20X5 at an estimated cost of $500 000. By the reporting date, 31 december 20X4, Hermione had not fitted the smoke filters.
For the above situation, a provision is not required to be made at the year end right ? Because there is no present obligation to fit the smoke filters, it only requires Hermione to fit the smoke filters by febuary 20X5.
If Hermione changes its mind to change its operation before febuary 20X5 in order to avoid the legal requirement to fit smoke filters, no obligation will arise.
What if the law required hermione to fit the smoke filters by the year end, that will give rise to a present obligation right ? And if the other 2 conditions are met then it must be provided for right ?
“What if the law required hermione to fit the smoke filters by the year end, that will give rise to a present obligation right ? And if the other 2 conditions are met then it must be provided for right ?”
Not only would a provision have been required but Hermione could also have been facing penalties for failing to have smoke filters fitted before the year end … if that had been the legal requirement
But that’s beyond the scope of this question
Another point that you have missed is that Hermione, in order to avoid the cost of filters or the cost of changing her operations has the further option to cease production and move production plant elsewhere in another country
OK?
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