Page 8 - 13. COMPILER QB - INDAS 37

action is very high but there is no concrete evidence which makes the inflow virtually certain. Hence, it
will be considered as a contingent asset only and shall not be recognized.

Q7. (Oct. 20 – 4 Marks)

An entity engaged in the automobile sector has assessed the impact of COVID-19 outbreak on its future
viability of business model. Senior Management has identified the need for restructuring some of its business
activities and retrenching its employees in many areas. Senior Management is drawing up a plan for the

consideration of the Board of Directors in their meeting scheduled in May 2020, which is subsequent to the
reporting date of the current financial year i.e. 31 March 2020. Can the entity recognise provisions for
restructuring costs in the financial statements of the current year i.e. 2019-2020?
SOLUTION

In accordance with Ind AS 37, ―Provisions, Contingent Liabilities and Contingent Assets‖, a constructive
obligation to restructure arises only when an entity has detailed formal plan for restructuring identifying
the business or part of business concerned; the principal locations affected; the location, function, and

approximate number of employees who will be compensated for terminating their services; the expenditures
that will be undertaken; and when the plan will be implemented; and has raised a valid expectation in
those affected that it will carry out the restructuring by starting to implement that plan or announcing its
main features to those affected by it.
Further, Ind AS 37 provides that a management or board decision to restructure taken before the end of the
reporting period does not give rise to a constructive obligation at the end of the reporting period unless the

entity has, before the end of the reporting period
(a) started to implement the restructuring plan; or
(b) announced the main features of the restructuring plan to those affected by it in a sufficiently specific
manner to raise a valid expectation in them that the entity will carry out the restructuring.

In the given case, since COVID-19 pandemic impact started during March 2020, it is likely that the senior
management started drawing up the plan for restructuring some of its business activities after the end of
the reporting period, i.e., 2019-2020. If that be so, as per Ind AS 37, the management decisions subsequent
to reporting date do not give rise to constructive obligation as of reporting date and no provision is
st
required for restructuring costs as at 31 March 2020.
In this regard, paragraph 75 of Ind AS 37 provides that if an entity starts to implement a restructuring plan,
or announces its main features to those affected, only after the reporting period, disclosure is required under
Ind AS 10, Events after the Reporting Period, if the restructuring is material and non-disclosure could influence
the economic decisions that users make on the basis of the financial statements.

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