Explain whether termination benefits should be recognized for the retrenchment packages?
QUESTION 1
Part A
Anima Ltd is a small company involved in the construction industry. Although Anima Ltd has not yet developed a detailed plan to restructure the business, an internal management decision was taken in early December 2018 to begin the process of downsizing its operations.
As a result of this decision Anima Ltd offered retrenchment packages on 15 December 2018 to 3 of its employees (Klein, Cain and Blessing). The offer of these retrenchment packages is legally binding on the entity for 6 months from the date of offer, after which the offer expires.
Shortly after the end of December, a fourth employee Donbrei approached management and requested a retrenchment package.
At Anima Ltd’s financial year ended 31 December 2018:
- only one of the three employees Klein took up the retrenchment package, while
- the remaining 2 employees Cain and Blessing were still considering their options, and
- the entity had agreed to retrench the fourth employee Donbrei.
Additionally, Anima Ltd leased a computer from Brail Ltd for a period of 24 moths. This lease qualifies as a lease of low-value asset, and thus qualifies for the recognition exemption in IFRS 16 Lease. Anima Ltd chooses to apply the recognition exemption to this lease. The lease payments are N$2 000 per month for the first year and N$ 2 300 per month for the second year. The lease commenced on 1April 2018. Anima Ltd has a 31 December year end.
Part b
Limpopo Ltd is a Listed Company packaging and distributing tea. The following information relates to the years ending 31 December 2018, 2019 and 2020.
|
|
2018 |
2019 |
2020 |
|
|
(10 000) |
10 000 |
20 000 |
Additional information:
Note 1:
Included in the Profit /Loss figures above is dividend income received of $20 000 in each financial year.
Note 2:
An assessed loss of $100 000 is carried forward from 2016.
Note 3
Sufficient appropriate evidence was available to recognize
Note 3:
There are no other temporary differences and no other temporary differences and no other items of exempt income or items of non-deductible expenses other than those evidenced from the given information
Note 4:
The tax rate is constant at 30%
|
Required TO: |
|
|
1. |
Explain whether termination benefits should be recognized for the retrenchment packages? |
Step by step
Solved in 2 steps
