Project #92818 - Question 5

 

 

 

5    Manco has been experiencing substantial losses at its furniture making operation which is treated as a separate
    operating segment. The company’s year end is 30 September. At a meeting on 1 July 2010 the directors decided
    to close down the furniture making operation on 31 January 2011 and then dispose of its non-current assets on a
    piecemeal basis. Affected employees and customers were informed of the decision and a press announcement was
    made immediately after the meeting. The directors have obtained the following information in relation to the closure of
    the operation:

(i)   On 1 July 2010, the factory had a carrying amount of $3·6 million and is expected to be sold for net proceeds of
    $5 million. On the same date the plant had a carrying amount of $2·8 million, but it is anticipated that it will only
    realise net proceeds of $500,000.

(ii)  Of the employees affected by the closure, the majority will be made redundant at cost of $750,000, the remainder
    will be retrained at a cost of $200,000 and given work in one of the company’s other operations.

(iii)  Trading losses from 1 July to 30 September 2010 are expected to be $600,000 and from this date to the closure
    on 31 January 2011 a further $1 million of trading losses are expected.

 

Required:

Explain how the decision to close the furniture making operation should be treated in Manco’s financial statements for the years ending 30 September 2010 and 2011. Your answer should quantify the amounts involved.

 

 

Subject Business
Due By (Pacific Time) 11/11/2015 12:00 am
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