On 9th December 2019 the board of directors of Geen plc decided to close down its overseas division. This decision was not communicated to any of those affected and no other steps were taken to implement the decision before the end of the reporting period 31 December 2019. Required:

Discuss the above situation and determine if a provision should be provided for the year 2019.

A provision should be provided only when a past event has created

1)A present obligation,

2)An outflow of resources is probable, and

3)Obligation amount can be estimated reliably

In this case, there has been no past obligating event and so there is no present obligation. Also, there is no possible obligation. Therefore, no provision should be recognized or provided for the year 2019.

If the entity communicates of implements the restructure after the end of the reporting period but before the issue of the financial statements, then the entity should disclose the fact as a non-adjusting event after the end of the reporting period.

In this case, no other steps were taken to implement the decision before the end of the reporting period. Therefore Geen plc should disclose the fact as a non-adjusting event after the end of the reporting period in the financial statements.