AASB 137 - Provisions, Contingent Liabilities and Contingent Assets - July 2004
Example 5B Closure of a Division — CommuExample 5B Closure of a Division — Communication/ Implementation Before End of the Reporting Period
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Example 5B Closure of a Division – Communication/ Implementation Before End of the Reporting Period
On 12 December 2000, the board of an entity decided to close down a division making a particular product. On 20 December 2000, a detailed plan for closing down the division was agreed by the board; letters were sent to customers warning them to seek an alternative source of supply and redundancy notices were sent to the staff of the division.
Present obligation as a result of a past obligating event – The obligating event is the communication of the decision to the customers and employees, which gives rise to a constructive obligation from that date, because it creates a valid expectation that the division will be closed.
An outflow of resources embodying economic benefits in settlement – Probable.
Conclusion – A provision is recognised at 31 December 2000 for the best estimate of the costs of closing the division (see paragraphs 14 and 72).