Aim loses #1m provision after goodwill ruling

Aerospace and defence company Aim Group was forced to remove a provision of almost #1m from its 1998 balance sheet last week after falling foul of accounting rules on goodwill and provisions.

Following discussions with the Financial Reporting Review Panel, Aim directors agreed to issue a supplementary note to their accounts removing the #951,000 provision, which had been set aside to cover closure costs for a factory in Kent which it acquired from engineering and defence company Hunting.

The hit to Aim’s 1998 profits will be offset by a #45,000 annual reduction in the amortised goodwill charged to the company’s p&l account.

Aim decided to close the factory after buying Hunting, so the provision was a post-acquisition event. The true and fair override did not justify departing from FRS 7: ‘Fair Values in Acquisition Accounting’, which requires managers to publicly announce events such as closures before allowing a provision, the FRRP decided.

As a result, the panel advised that the provision could not be deducted from the goodwill arising from the purchase.

The company’s auditor, Rothman Pantall of Havant, declined to comment on the supplementary note.

FRS 7 will be reinforced on 23 March when FRS 12: ‘Provisions, Contingent Liabilities and Contingent Assets’ comes into effect. First Leisure, which adopted FRS 12 early for its latest financial year, had to remove #2m of provisions from its balance sheet as a result, according to accounts monitor Company Reporting.

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