Phonebiz Ltd is a telecommunications company that is listed on the Australian Securities Exchange. Due to a downturn in sales in one of their regional stores, Phonebiz Ltd’s Board of Directors decided to cease trading in that location. In a meeting held in February 20X4, the Board decided that 100 employees would be retrenched and a further 60 employees would be relocated to other stores operated by Phonebiz Ltd. The estimated budget for the compensation of retrenched staff was $1.5 million. The cost of retraining and relocating employees was estimated to be $400,000.

On 20 April 20X4 an announcement was made to all employees that were affected by the restructuring. In the announcement, retrenched employees were notified of the amount of compensation they would receive and when the closure would occur.

In July 20X4 the store ceased trading and negotiations commenced for the sale of the land and buildings that were no longer required as a result of the closure.

Required:

Describe the nature of this event and explain how it should be accounted for in the financial statements of Phonebiz Ltd for the year ended 30 June 20X4. Specify any journal entry(ies) and/or disclosures that may be required.
Your answer must clearly state your position and provide the evidence that you have used to determine that position. The supporting evidence should include adequate explanation and justification of the accounting treatment required and be supported by references from Australian accounting pronouncements (including paragraph numbers where appropriate). Narrations are not required for any journal entries prepared.

Answer rating: 100% (QA)

This event is an act of restructuring within the company thus it should be accounted for as an adjus... View the full answer