In 2015, Giant Store made the decision to close a loss-making department in 2016. The company proposed to make a provision for the future costs of termination in the 2015 profit or loss. Its argument was that a liability existed in 2015 which should be recognised in 2015.

In 2015, Giant Store made the decision to close a loss-making department in 2016. The company proposed to make a provision for the future costs of termination in the 2015 profit or loss. Its argument was that a liability existed in 2015 which should be recognised in 2015. The auditor objected to recognising a liability, but agreed to recognition if it could be shown that the management decision was irrevocable.

Discuss whether a liability exists and should be recognised in the 2015 statement of financial position.
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