Application of the Recognition And Measurement Rules

Future Operating Losses

Future operating losses do not meet the definition of a liability and the general recognition criteria, therefore provisions should not be recognised for future operating losses.


The following are examples of events that may fall under the definition of restructuring:

  • Sale or termination of a line of business;
  • The closure of business locations in a country or region or the relocation of business activities from one country or region to another;
  • Changes in management structure, for example, eliminating a layer of management; and
  • Fundamental re-organisations that have a material effect on the nature and focus of the enterprise’s operations.

A provision for restructuring costs is recognised only when the recognition criteria for provisions. No obligation arises for the sale of an operation until the enterprise is committed to the sale, i.e., there is a binding sale agreement. Until there is a binding sale agreement, the enterprise will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms.

A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both:

  • Necessarily entailed by the restructuring; and
  • Not associated with the ongoing activities of the enterprise.

A restructuring provision does not include such costs as:

  • Retraining or relocating continuing staff;
  • Marketing; or
  • Investment in new systems and distribution networks.

These expenditures relate to the future conduct of the business and are not liabilities for restructuring at the balance sheet date. Such expenditures are recognised on the same basis as if they arose independently of a restructuring.

Identifiable future operating losses up to the date of a restructuring are not included in a provision. 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.


For each class of provision, an enterprise should disclose:

  • The carrying amount at the beginning and end of the period;
  • Additional provisions made in the period, including increases to existing provisions;
  • Amounts used (i.e. incurred and charged against the provision) during the period; and (d)

Unused amounts reversed during the period.

SMCs are exempt from the disclosure requirements of AS 29

An enterprise should disclose the following for each class of provision:

  • A brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits;
  • An indication of the uncertainties about those outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events, and
  • The amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.

SMCs are exempt from the disclosure requirements of AS 29.

Unless the possibility of any outflow in settlement is remote, an enterprise should disclose for each class of contingent liability at the balance sheet date a brief description of the nature of the contingent liability and, where practicable:

  • An estimate of its financial effect,
  • An indication of the uncertainties relating to any outflow; and
  • The possibility of any reimbursement.
Changes in Provisions
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