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Practical caseIAS 37L3 · Advanced

Site closure: constructive obligation to restructure and eligible costs

6 documents7 tasks≈ 80 min
0 / 10 items completed
Standards
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Brisandor Textiles SA (a fictitious entity) weaves technical fabrics on two sites. To concentrate its production, it has decided to close its Plessac weaving plant and to transfer part of the activity to its Mérange site; a reorganisation of its sales network in Iberia has also been decided. You are preparing the financial statements for the year ended 31 December 20X3, authorised on 20 February 20X4.

Your assignment

Determine whether the two projects are restructurings and whether there is a constructive obligation to restructure at 31 December 20X3; sort the costs between eligible expenditures and excluded costs, calculate the provision, record the entry, measure its impact and state the disclosures required.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Advanced level: no help, the work is grouped by kind.

Events

Chronology of the file

  1. November 14 20X3Date of the decision to close Plessac · Dated fact of the file

    Document 1

  2. December 5 20X3Date of the announcement to those affected · Dated fact of the file

    Document 2

  3. December 20 20X3Date of the decision to reorganise in Iberia · Dated fact of the file

    Document 5

  4. December 31 20X3Reporting date · Dated fact of the file

    Document 2

  5. January 15 20X4Date of the announcement of the Iberian reorganisation · Dated fact of the file

    Document 5

  6. June 30 20X4Closure deadline · Dated fact of the file

    Document 1

  7. January 1 20X5Start of the strategic plan · Dated fact of the file

    Document 6

Documents

File documents

6 documents: open each one to read it.

Document 1Minutes

Minutes of the board of directors' meeting

Minutes of the board of directors' meeting of 14 November 20X3. The board approves the detailed plan for closing the Plessac plant: discontinuation of the site's weaving activity, about 85 employees made redundant (production and maintenance), transfer of 30 employees to the Mérange site, estimated expenditures, closure completed by 30 June 20X4 at the latest. In accordance with local regulations, the works council was informed and consulted before the decision.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Date of the decision to close PlessacNovember 14 20X3
Approximate number of employees made redundant85 units
Closure deadlineJune 30 20X4
Date of the announcement to those affectedDecember 5 20X3
Reporting dateDecember 31 20X3
Redundancy payments€1,530,000.00
Termination penalties on the site's contracts€45,000.00
Dismantling and scrapping of the looms€160,000.00
Training of transferred employees€120,000.00
Relocation of retained staff€90,000.00
Communication campaign to customers€70,000.00
New planning software€250,000.00
Operating losses until closure€380,000.00
Expected sale price of the building€650,000.00
Carrying amount of the building€440,000.00
Date of the decision to reorganise in IberiaDecember 20 20X3
Date of the announcement of the Iberian reorganisationJanuary 15 20X4
Estimated cost of the Iberian reorganisation€260,000.00
Revenue target€48,000,000.00
Start of the strategic planJanuary 1 20X5

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort6

  • Minutes of the board of directors' meeting

  • Press release and letters to those affected

  • Schedule of closure costs

  • Real estate department memo

  • Minutes of the executive committee meeting (Iberia)

  • Extract from the group's strategic plan

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      7 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Are the Plessac and Iberian projects restructurings within the meaning of IAS 37?

      2. Task 2Professional judgement

        Is there a constructive obligation to restructure at 31 December 20X3 for each project?

      3. Task 3Analysis

        Classify each cost in the finance department's schedule: eligible expenditure or excluded cost.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Classify each cost in the finance department's schedule: eligible expenditure or excluded cost.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Expected gain on the sale of the building (not deducted)

      4. Task 4Calculation

        Calculate the restructuring provision at 31 December 20X3.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the restructuring provision at 31 December 20X3.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Journal entries

        Record the entry at 31 December 20X3.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      6. Task 6Effects on the financial statements

        What is the impact of this entry on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      7. Task 7Conclusion

        Write the conclusion, including the disclosures required, and answer the chief financial officer.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 10).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 37 §51
      • IAS 37 §52
      • IAS 37 §70
      • IAS 37 §71
      • IAS 37
      • IAS 37 §73
      • IAS 37
      • IAS 37
      • IAS 37
      • IAS 37 §80
      • IAS 37
      • IAS 37
      • IAS 37