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Restructuring provision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Restructuring provision

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by Kim Smith.
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  • May 13, 2022 at 12:25 pm #655540
    sadafwaheed1
    Participant
    • Topics: 84
    • Replies: 32
    • ☆☆

    Sir if the restructuring provision cost is incorrectly then how this overstated expense and understand profit ?

    May 13, 2022 at 1:34 pm #655544
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8357
    • ☆☆☆☆☆

    The D/E for setting up ANY provision – i.e. to recognise a liability – is:

    Dr Expense (e.g. wages and salaries)
    Cr Provision (e.g. for redundancy settlement

    If a provision has been recognised that should not have been recognised – e.g. it is not “de facto” a liability at the reporting date – expense is overstated – and hence profit understated.

    The correcting journal will be to “write-back” the provision:
    Dr Provision
    Cr Expense

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