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Consider the following situations: Rupert plc operates an offshore oilfield. The companys licensing agreement requires it to remove the oil rig at the end of

  1. Consider the following situations:

  1. Rupert plc operates an offshore oilfield. The companys licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. Rupert plc estimates that the cost of the work will be 15 million in ten years time. The present value of the work is 10.5 million. (2 marks)

  1. George plc manufactures small items of equipment which it sells via a retail network. The company sold 15,000 items during the current year. The company provides a one-year guarantee if the equipment fails. Based on past experience, 5% of items sold are returned for repair or replacement. One third of the items returned are able to be repaired at a cost of 50, whilst the remaining two thirds are scrapped and replaced. The manufacturing cost of a replacement item is 180. (4 marks)

  1. Frederick plc intends to restructure its business model. The companys Board of Directors met at the beginning of November 2019 and drew up a detailed business plan for the closure of one of its main production sites, sale of the buildings and the redundancy of 160 staff members.

The plans have been discussed with the Union representatives from all staff groups impacted and a formal announcement has been made publicly.

The closure of the site, profit on the building disposal and redundancy costs are expected to result in a net loss of 100,000. (4 marks)

YOU ARE REQUIRED TO:

Discuss the correct treatment under IAS 37, and, where appropriate, calculate the amounts to be included in the financial statements for each situation.

The allocation of available marks is shown within each element. (maximum word count 200 words)

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