Question

Company T’s directors decided on 3 May 2014 to restructure the company’s operations as follows:• Factory Z would be closed down and put on the market for sale.

• 100 employees working in factory Z would be retrenched on 31 May 2014, and would be paid their accumulated entitlements plus 3 months’ wages.

• The remaining 20 employees working in factory Z would be transferred to factory X, which would continue operating.\

• Five head-office staff would be retrenched on 30 June 2014, and would be paid their accumulated entitlements plus 3 months’ wages.As at the end of Company T’s reporting period, 30 June 2014, the following transactions and events had occurred:

• Factory Z was shut down on 31 May 2014. An offer of $4 million had been received for factory Z but there was no binding sales agreement.

• The 100 retrenched employees had left and their accumulated entitlements had been paid. However, an amount of $76000, representing a portion of the 3 months’ wages for the retrenched employees, had still not been paid.

• Costs of $23000 were expected to be incurred in transferring the 20 employees to their new work in factory X. The transfer is planned for 14 July 2014.

• Four of the five head-office staff who have been retrenched have had their accumulated entitlements paid, including the 3 months’ wages. However, one employee, Jerry Perry, remains in order to complete administrative tasks relating to the closure of factory Z and the transfer of staff to factory X. Jerry is expected to stay until 31 July 2014. His salary for July will be $4000 and his retrenchment package will be $13000, all of which will be paid on the day he leaves. He estimates that he would spend 60% of his time administering the closure of factory Z, 30% on administering the transfer of staff to factory X, and the remaining 10% on general administration.

Question-Calculate the amount of the restructuring provision recognized in Company T’s financial statements as of 30 June 2014, in accordance with IAS 37

Answer 1

P. Nol Accalding to chto I As 37. Porovisions, contigent liablelies and Contigent Assets is to ensure => The objective of IAS- 37 appotopatfate recognition and measurement of provisions, Contigent liabilikes and Contigent assets. > provision should only be reconed when there Callity (ie present obligation arising die to past events) any planned feature expenditure is a needs to be avoided. IAS - 37 Excluded the following :- 1. TAS - 9 - Financial instruments 9. non- onerous executory Contracts 3. Insurance Contracts QAs-11 - Construction Contracts. 5. I As-la- Income tax, PAS - 17 leases and IAS 19- Employee Benefits u.

P.No.2 whether a Certain event » Provision - A ponesona obligation arising dure to past events (amorent Can be estimated reliably) Contigent liability - A personale obligation on occurs in the future al not Camount Cannot be measured accurately) 3) Contigent Asset - Existence can only be Confirmed by future occurrance of an uncertain event note utally writing the control of the entity The amount of destructuring Provision for Company T would be as follows. Any amount payable to employees is not Covered under this standard and will be dealt Seperately under ?As-19 > Contigent Asset - $ 4 million (as the same has not been received as yet and it is a future uncertain event

1 P.No.3 Prevision $ 93,000 Cost of transfer of employee to the new location Cas can be estimated reliably and is controlled by the entity) Jerry spent 60% of the time transferring the Staff $ 13,000 X 60% $ 4800 me please give positive vote. It's help a lot. Thank you.... me