Restructuring provision: eligible expenditures

Learning objectives

• Distinguish eligible direct expenditures (necessarily entailed by the restructuring and not associated with the ongoing activities) from excluded costs (retraining or relocating continuing staff, marketing, new systems, future operating losses, gains on disposal).L2, L3
• Calculate the amount of a restructuring provision from a list of costs.L2, L3
• Recognise the restructuring provision.L2, L3

Normative references

• IAS 37 §80A restructuring provision includes only the direct expenditures arising from the restructuring, i.e. those that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
• IAS 37It excludes in particular retraining or relocating continuing staff, marketing and investment in new systems and distribution networks: these expenditures relate to the future conduct of the business and are recognised on the same basis as if they arose independently of a restructuring.
• IAS 37Identifiable future operating losses up to the date of a restructuring are not included in the provision, unless they relate to an onerous contract.
• IAS 37As required by para. 51, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

10 questions

• Which expenditures may a restructuring provision include?L2
• Moncelis is closing a warehouse as part of a restructuring. Which expenditures must be excluded from the provision?L2
• Névillane has a constructive obligation to restructure at 31 December 20X5 (closure of its Bellerivane site). Estimated costs: compensation of employees made redundant {severance}; termination penalties on the supply contracts of the closed site {supply_penalties}; removal of equipment from the closed site {equipment_removal}; training of continuing staff {retraining}; communication campaign on the new organisation {marketing}; new IT system for the remaining sites {new_it_system}. Compute the provision.L2
• The Ondavelle group is consolidating its logistics activities and closing three warehouses; the constructive obligation exists at the reporting date. Data: severance payments {severance_pay}; warehouse closure costs {warehouse_closure}; operating losses expected from the warehouses until closure {operating_losses} (no onerous contract); gain expected on the sale of a warehouse {expected_gain}; relocation of continuing staff to the new site {staff_relocation}. What amount should be provided for?L3
• Pélissane has a constructive obligation to restructure at the reporting date; the eligible direct expenditures, measured at the best estimate, amount to {eligible_costs}. Record the entry.L2
• Quinsavel is eliminating its regional management layer; the constructive obligation exists at 31 December. Estimated costs: compensation of the managers made redundant {severance}; exit from the service contracts of the closed regional offices {supplier_exit}; training of continuing managers in the new organisation {retraining}. Record the provision entry.L3
• Rochemaurel is closing its Valbrenne site; the direct restructuring expenditures amount to 1,600,000. It expects to sell the site at a gain of 700,000 and has recognised a net provision of 900,000. What is the error?L3
• Saulnivel's restructuring provision includes 820,000 of direct expenditures and 260,000 of identifiable operating losses up to the closure date of the site, unrelated to any onerous contract. What is the error?L3
• As part of closing its plant, Tavernelle identifies two losses expected up to the closure date: (1) the general operating loss of the plant; (2) the loss on a fixed-price delivery contract that has become onerous and must be performed until the last day. Which can be included in provisions at the reporting date?L3
• Usselane is merging two head offices into one. Continuing staff will be relocated to the new head office, at a moving and installation cost of 310,000. Is this cost included in the restructuring provision?L2