Tee Ltd's directors decided on 3 May 2020 to restructure the company's operations as follows. o...

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Tee Ltd's directors decided on 3 May 2020 to restructure the company's operations as follows. o Factory Z would be closed down and put on the market for sale. o 100 employees working in Factory Z would be retrenched on 31 May 2020, and would be paid their accumulated entitlements plus 3 months wages. o The remaining 20 employees working in Factory Z would be transferred to Factory X, which would continue operating. o Five head-office staff would be retrenched on 30 June 2020, and would be paid their accumulated entitlements plus 3 months wages. As at the end of Tee Ltd's reporting period, 30 June 2020, the following transact had occurred. Factory Z was shut down on 31 May 2020. An offer of $4 million had been received for Factory Z but there was no binding sales agreement. o 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 2020. 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, James 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 2020. 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. Required o o 1.Summarise the accounting for provisions and contingent liabilities with reference to AASB 137. 2. Calculate the amount of the restructuring provision recognised in Tee Ltd's financial statements as at 30 June 2020, in accordance with AASB 137. 3. Analyse the impact of restructuring provisions on gearing ratios of Tee Ltd and implications on their existing debt covenants. Tee Ltd's directors decided on 3 May 2020 to restructure the company's operations as follows. o Factory Z would be closed down and put on the market for sale. o 100 employees working in Factory Z would be retrenched on 31 May 2020, and would be paid their accumulated entitlements plus 3 months wages. o The remaining 20 employees working in Factory Z would be transferred to Factory X, which would continue operating. o Five head-office staff would be retrenched on 30 June 2020, and would be paid their accumulated entitlements plus 3 months wages. As at the end of Tee Ltd's reporting period, 30 June 2020, the following transact had occurred. Factory Z was shut down on 31 May 2020. An offer of $4 million had been received for Factory Z but there was no binding sales agreement. o 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 2020. 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, James 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 2020. 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. Required o o 1.Summarise the accounting for provisions and contingent liabilities with reference to AASB 137. 2. Calculate the amount of the restructuring provision recognised in Tee Ltd's financial statements as at 30 June 2020, in accordance with AASB 137. 3. Analyse the impact of restructuring provisions on gearing ratios of Tee Ltd and implications on their existing debt covenants.

Answer rating: 100% (QA)

Required 1 Sum mar ise the accounting for provisions and contingent liabilities with reference to A AS B 137 ANS WER A AS B 137 sets out the requireme... View the full answer