C) Another company, Wader has decided to close one of its overseas branches. A board meeting was held on 28 February 20X8 when a detailed formal plan was presented to the board. The plan was formalised and accepted at that meeting. Letters were sent out to customers, suppliers and workers on 15 March 20x8 and meetings were held prior to the year end to determine the issues involved in the closure. The plan is to be implemented in April 20XB. The company wants to make a restructuring provision of $B million for the dosure, but is unsure whether this is permissible. Wader identified a contract with a supplier as potentially onerous. The company sought legal advice, which confirmed that the contract is onerous. Under the contract, Wader must purchase a minimum of $1.5 million of goods each year for the two years ending 31 March 20X9 and 20Y0. The relevant discount rate for these payments is 5%. When contacted by Wader, the supplier offered to cancel the contract for a one-off payment of $2.4 million on 31 March 20X8. Explain how the closure of the overseas branch and the onerous contract should be treated in accordance with IFRS Standards.

C) Another company, Wader has decided to close one of its overseas branches. A board meeting was held on 28 February 20X8 when a detailed formal plan was presented to the board. The plan was formalised and accepted at that meeting. Letters were sent out to customers, suppliers and workers on 15 March 20x8 and meetings were held prior to the year end to determine the issues involved in the closure. The plan is to be implemented in April 20XB. The company wants to make a restructuring provision of $B million for the dosure, but is unsure whether this is permissible. Wader identified a contract with a supplier as potentially onerous. The company sought legal advice, which confirmed that the contract is onerous. Under the contract, Wader must purchase a minimum of $1.5 million of goods each year for the two years ending 31 March 20X9 and 20Y0. The relevant discount rate for these payments is 5%. When contacted by Wader, the supplier offered to cancel the contract for a one-off payment of $2.4 million on 31 March 20X8. Explain how the closure of the overseas branch and the onerous contract should be treated in accordance with IFRS Standards.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter5: Completing The Accounting Cycle

Section: Chapter Questions

Problem 1TP: Assume you are the controller of a large corporation, and the chief executive officer (CEO) has...

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