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 $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. Questions 1. state if each of the costs identified above should be provided for. Give reasons for your answers. Include calculations where necessary. 2.Calculate the amount of the restructuring provision if any.
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 $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.
Questions
1. state if each of the costs identified above should be provided for. Give
reasons for your answers. Include calculations where necessary.
2.Calculate the amount of the restructuring provision if any.
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