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As 29
Accountancy
In 13.1 ,subquestion 1 There is provision created to remove oil rig but why to create provision for restoration of damage which has not incurred till now.It says outflow of resources embodying economic benefits is probable and therefore provision will be created also for damage restoration, did not understand. In subquestion 2 , what is happening here, what are restructuring cost provisions.
Answers (12)
Provisions 14. A provision should be recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised. Here the condition is met and hence the provision is created
A restructuring is a programme that is planned and controlled by management, and materially changes either: (a) the scope of a business undertaken by an enterprise; or (b) the manner in which that business is conducted The following are examples of events that may fall under the definition of restructuring: (a) sale or termination of a line of business; (b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another; A provision for restructuring costs is recognised only when the recognition criteria for provisions set out as below: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are met, then restructuring cost provisions should be recognized.
Thread Starter
pradyumna hariramaniPls explain the b point
A restructuring is a programme that is planned and controlled by management, and materially changes either: (a) the scope of a business undertaken by an enterprise; or (b) the manner in which that business is conducted The following are examples of events that may fall under the definition of restructuring: (a) sale or termination of a line of business; (b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another; A provision for restructuring costs is recognised only when the recognition criteria for provisions set out as below: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are met, then restructuring cost provisions should be recognized.
Thread Starter
pradyumna hariramaniPls explain the b point
Outflow of resources means outflow of cash. It should be probable that i future to fulfill that obligation there should be some cash outflow form the company.
1. This is related to decommissioning. Because the company operates an offshore field there is an obligation on the company to remove the rig and restore the seabed. Hence a liability is recognised for same at present value. Corresponding debit to PPE - Refer AS 10 2. In this case there is no restructuring activity and just training is to be provided. Since training is not yet provided, no liability to be recognised.
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