Question
The following information relates to a company which prepares financial statements to 31 st December each year: (a) On 1 st January 2017, the company
The following information relates to a company which prepares financial statements to 31st December each year:
(a) On 1st January 2017, the company acquired new plant costing Ghs10million. This plant will require a complete overhaul after five years of use, at an estimated cost of Ghs1million. Accordingly, the company wishes to make a provision of Ghs200,000 for plant overhaul costs in its financial statement for the year to 31st December 2017 and then to increase this provision by Ghs200,000 every year for the next four years. This will have the effect of spreading the overhaul costs yearly over the years 2017 to 2021.
(b) On 31st December 2017, the company moved from leased premises into new freehold premises. The lease on the old premises will continue for three more years at an annual cost of Ghs100,000. The lease cannot be cancelled and the premises cannot be sublet or used for any other purpose. The company wishes to make a provision of Ghs300,000 in its financial statements for the year to 31st December 2017.
(c) In November 2017, the company decided to sell off one of its operations. No buyer had been found at 31st December 2017 but the sale is expected to result in a loss of Ghs500,000 when it occurs. The company wishes to provide for this loss in the financial statements for the year to 31st December 2017.
Required
According to the rules of IAS 37, Explain whether any of these three provisions be made?
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