The board of directors of Bibiko Inc. decided on December 15, 2021, to wind up international operations in the Far East and move them to Australia. The decision was based on a detailed formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers and management personnel at the headquarters in Europe. The cost of restructuring the operations in the Far East as per this detailed plan was P2 million. How should Bibiko Inc. treat this restructuring in its financial statements for the year-end December 31, 2021? A. Because Bibiko Inc. has not announced the restructuring to those affected by the decision and thus has not raised an expectation that Bibiko Inc. will actually carry out the restructuring (and as no constructive obligation has arisen), only disclose the restructuring decision and the cost of restructuring of ₱2 million in footnotes to the financial statements.
The board of directors of Bibiko Inc. decided on December 15, 2021, to wind up international operations in the Far East and move them to Australia. The decision was based on a detailed formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers and management personnel at the headquarters in Europe. The cost of restructuring the operations in the Far East as per this detailed plan was P2 million. How should Bibiko Inc. treat this restructuring in its financial statements for the year-end December 31, 2021? A. Because Bibiko Inc. has not announced the restructuring to those affected by the decision and thus has not raised an expectation that Bibiko Inc. will actually carry out the restructuring (and as no constructive obligation has arisen), only disclose the restructuring decision and the cost of restructuring of ₱2 million in footnotes to the financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The board of directors of Bibiko Inc. decided on December 15, 2021, to wind up international operations in the Far East and move them to Australia. The decision was based on a detailed formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers and management personnel at the headquarters in Europe. The cost of restructuring the operations in the Far East as per this detailed plan was P2 million. How should Bibiko Inc. treat this restructuring in its financial statements for the year-end December 31, 2021?
A. Because Bibiko Inc. has not announced the restructuring to those affected by the decision and thus has not raised an expectation that Bibiko Inc. will actually carry out the restructuring (and as no constructive obligation has arisen), only disclose the restructuring decision and the cost of restructuring of ₱2 million in footnotes to the financial statements.
B. Recognize a provision for restructuring since the board of directors has approved it and it has been announced in the headquarters of Bibiko Inc. in Europe.
C. Mention the decision to restructure and the cost involved in the chairman’s statement in the annual report since it a decision of the board of directors.
D. Because the restructuring has not commenced before year-end, based on prudence, wait until next year and do nothing in this year’s financial statements.
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