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Mitra Ltd. has publicly announced a plan to dispose of its 75% subsidiary Dosti Ltd., expected to complete in October 20X4 (seven months after the reporting date). Mr. X, the CA in finance, identifies expected future trading losses of ₹20 cr, legal sale costs of ₹1.5 cr, redundancy costs of ₹4 cr and PPE impairment of ₹7 cr. The COO opposes any restructuring provision. The correct accounting treatment is:
AProvide ₹5.5 cr being legal costs and redundancy, classify Dosti as held for sale under Ind AS 105 and recognise PPE impairment via remeasurement to fair value less costs to sell
BProvide ₹12.5 cr for legal, redundancy and PPE impairment; future losses excluded
CProvide ₹32.5 cr for all four cost categories under Ind AS 37
DProvide nothing because the sale has not yet occurred and obligation arises only on signing of share purchase agreement
Answer & Solution
Correct answer: A. Provide ₹5.5 cr being legal costs and redundancy, classify Dosti as held for sale under Ind AS 105 and recognise PPE impairment via remeasurement to fair value less costs to sell
Held-for-sale criteria of Ind AS 105 are met (highly probable, within 12 months, active marketing implied by board approval + stock-exchange disclosure). A constructive obligation exists via media announcement (Ind AS 37). Provision is restricted to directly attributable costs — legal ₹1.5 cr + redundancy ₹4 cr = ₹5.5 cr. Future operating losses are excluded (no obligating event) and PPE impairment is absorbed in the remeasurement to lower of carrying amount and FVLCS under Ind AS 105.
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