Question $8$

Epsilon is a listed entity. You are the financial controller of the entity and its consolidated financial state$-$

ments for the year ended $31$ March $2019$ are being prepared. The board of directors is responsible for

all key financial and operating decisions, including the allocation of resources.

Your assistant is preparing the first draft of the statements. He has a reasonable general accounting

knowledge but is not familiar with the detailed requirements of all relevant financial reporting standards.

There is one issue on which he requires your advice and he has sent you a note as shown below:

I note that on $31$ January $2019$ the board of directors decided to discontinue the activities of a number

of our subsidiaries. This decision was made, I believe, because these subsidiaries did not fit into the

long$-$term plans of the group and the board did not consider it likely that the sub$-$sidiaries could be

sold. This decision was communicated to the employees on $28$ February $2019$ and the activities of the

subsidiaries affectedwere gradually curtailed startingon $1$ May $2019,$ with an expected completion date

of $30$ September $2019.$ I have the following information regarding the closure programme:

$($a$)$ All the employees in affected subsidiaries were offered redundancy packages and some of the

employees were offered employment in otherparts of the group. These offers had to be accepted

or rejected by $30$ April $2019.$ On $31$ March $2019$ the directors estimated that the cost of redun$-$

dancies would be $$20$ million and the cost of relocation of employees who accepted alternative

employment would be $$10$ million. Following $30$ April $2019$ these estimates were revised to

$$22$ million and $$9$ million respectively.

$($b$)$ Latest estimates are that the operating losses of the affected subsidiaries for the six months to

$30$ September $2019$ will total $$15$ million.

$($c$)$ A number of the subsidiaries are leasing properties under non$-$cancellable operating leases.

I believe that at $31$ March $2019$ the present value of the future lease payments relating to these

properties totalled $$6$ million. The cost of immediate termination of these lease obligations would

be $$5$ million.

$($d$)$ The carryingvalues of the freehold properties owned bythe affected subsidiaries at$31$ March$2018$

totalled $$25$ million. The estimated net disposal proceeds of the properties are $$29$ million and all

properties should realise a profit.

$($e$)$ The carryingvalue of the plant and equipment owned by the affected subsidiaries at $31$ March $2018$

was $$18$ million. The estimated current disposal proceeds of this plant and equipment is $$2$ million

and its estimated value in use $($including the proceeds from ultimate disposal$)$ is $$8$ million.

I am unsure regarding a number of aspects of accounting for this decision by the board. Please tell me

how the decision to curtail the activities of the three subsidiaries affects the financial statements.

Required:

Draft a reply to the questions raised by your assistant.