Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as follows: Factory A would be closed down and put on the market for sale. Employees working in Factory A would be retrenched on November 30, 2011, and would be paid their accumulated entitlements plus six months' wages. Some employees working in Factory A would be transferred to Factory B, which would continue operating. On December 31, 2011, the following transactions and events had occurred: The retrenched employees have left and their accumulated entitlements have been paid. However, an amount of P1,000,000, representing a portion of the six months' wages for the retrenched employees, has still not been paid. Costs of P300,000 are expected to be incurred in transferring the remaining employees to their new work in Factory B. The transfer is planned for January 15, 2012. One employee, Juan Cruz, remains in order to complete administrative tasks relating to the closure of Factory A and the transfer of employees to Factory B. Juan Cruz is expected to stay until January 31, 2012. His salary for January will be P50,000 and his retrenchment package will be P150,000, all of which will be paid on the day he leaves. Juan Cruz would spend 60% of his time administering the closure of Factory A, 30% on administering the transfer of employees to Factory B, and the remaining 10% on general administration. What total amount should be recognized as restructuring provision on December 31, 2011? a. 1,480,000 b. 1,500,000 c. 1,180,000 d. 1,200,000

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter3: Internal Control Over Financial Reporting: Responsibilities Of Management And The External Auditor

Section: Chapter Questions

Problem 40RQSC

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Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as follows: Factory A would be closed down and put on the market for sale. Employees working in Factory A would be retrenched on November 30, 2011, and would be paid their accumulated entitlements plus six months' wages. Some employees working in Factory A would be transferred to Factory B, which would continue operating. On December 31, 2011, the following transactions and events had occurred: The retrenched employees have left and their accumulated entitlements have been paid. However, an amount of P1,000,000, representing a portion of the six months' wages for the retrenched employees, has still not been paid. Costs of P300,000 are expected to be incurred in transferring the remaining employees to their new work in Factory B. The transfer is planned for January 15, 2012. One employee, Juan Cruz, remains in order to complete administrative tasks relating to the closure of Factory A and the transfer of employees to Factory B. Juan Cruz is expected to stay until January 31, 2012. His salary for January will be P50,000 and his retrenchment package will be P150,000, all of which will be paid on the day he leaves. Juan Cruz would spend 60% of his time administering the closure of Factory A, 30% on administering the transfer of employees to Factory B, and the remaining 10% on general administration. What total amount should be recognized as restructuring provision on December 31, 2011?

a. 1,480,000

b. 1,500,000

c. 1,180,000

d. 1,200,000

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