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Individual Assignment 2

The company operates two divisions, Beans and Spaghetti. On 30 November 2020, it was decided to close the Spaghetti division by 31 March 2021 due to adverse exchange rates. It was also decided to restructure the Beans distribution operations between 15 January to 31 March 2021. The director is unsure how these decisions may impact the 31 December 2020 financial statements and is seeking guidance.

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128 views2 pages

Individual Assignment 2

The company operates two divisions, Beans and Spaghetti. On 30 November 2020, it was decided to close the Spaghetti division by 31 March 2021 due to adverse exchange rates. It was also decided to restructure the Beans distribution operations between 15 January to 31 March 2021. The director is unsure how these decisions may impact the 31 December 2020 financial statements and is seeking guidance.

Uploaded by

Loveness Nyakurimwa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ASSIGNMENT QUESTION

A company with a 31 December year end, sells processed products to retail shops and has two
operating divisions: the Beans division which specialises in the processing and sale of canned
beans and the Spaghetti division which does the same in respect of canned spaghetti. The
canned beans are processed from beans bought in directly from local farmers. The canned
spaghetti is processed from pasta which is purchased from suppliers in Zambia. Each division
operates in its own freehold factory and maintains separate financial records in order to produce
a monthly operating report for Head Office.

Once canned, the products are transferred to one of four freehold distribution centres (two
centres per factory) prior to onward sale to shops and supermarkets. The distribution centres
also maintain their own individual financial records.

Due to adverse exchange rate movements it was decided on 30 November 2020 to close the
Spaghetti division down, with the majority of the personnel employed being made redundant.
The decision was announced to the workforce on 15 December 2020, on which date the factory
and one of the associated distribution centres were put up for sale. It was expected that the sale
of the properties and the closure would be completed by 31 March 2021.

On 30 November 2020, the entity also decided to restructure its remaining distribution
operations for canned beans, redefining the areas covered by the distribution centres and
reducing staffing levels. The timetable decided on was for the restructuring to commence on
15 January 2021 and be completed by 31 March 2021. Apart from carrying out extensive
negotiations with workers representatives regarding redundancy packages, no restructuring
activities were to be commenced before 15 January 2021.

You are the Chief Accountant of this entity, and one of the directors has recently visited you
to discuss the accounting treatment of the closure and restructuring programme. The director
is unsure as to whether the programme will have any impact on the financial statements for the
year ended 31 December 2020. The director is aware that there is a financial reporting standard
which deals with the discontinued operations but is unaware of any relevant details. The 2020
financial statements are currently in the course of preparation and are expected to be formally
approved by the directors at the April 2020 board meeting.

Required:

Write a memo to the Board of Directors which:


(a) Explains how a discontinued operation is defined in IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations and when restructuring provisions are to be recognised
under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(8 marks)
(b) Outlines the accounting treatment (if any) in the financial statements for the year ended
31 December 2020 of the decisions taken on 30 November 2020.

Your explanation should encompass the treatment in the Statement of financial position and
Statement of profit or loss and other comprehensive income and any additional information
which is required in the notes to the financial statements. (12 marks)

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