Company S’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 S’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 $76 000, representing a portion of the 3 months’ wages for the retrenched employees, had still not been paid. • Costs of $23 000 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 $13 000, 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. Requirements: a) State if each of the costs identified above should be provided for. Give reasons for your answers. Include calculations where necessary . b) Calculate the amount of the restructuring provision if any.
Company S’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 S’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 $76 000, representing a portion of the 3 months’ wages for the retrenched employees, had still not been paid.
• Costs of $23 000 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 $13 000, 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.
Requirements:
a) State if each of the costs identified above should be provided for. Give reasons for your answers. Include calculations where necessary .
b) Calculate the amount of the restructuring provision if any.
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