Question
Dolphin Ltd owns and operates 12 restaurants across Australia. The company had been profitable until 20X0 when the effects of a global pandemic reduced their
Dolphin Ltd owns and operates 12 restaurants across Australia. The company had been profitable until 20X0 when the effects of a global pandemic reduced their revenue by a significant amount and resulted in losses for several of their restaurants.
After considering all possible options, Dolphin Ltds management decided to prepare a draft plan to close down the 5 lowest performing restaurants, which would be presented to the companys Board of Directors on 25 May 20X1. At the meeting, the Board approved a detailed formal plan to shut down the restaurants, which would be implemented in August 20X1. By 31 May 20X1, the closure plan had been communicated to and agreed upon by the workers union.
On 15 June 20X1 a media report was aired on local television announcing the shutdown of the restaurants and redundancy letters were sent to 50 of the 55 restaurant employees. The other 5 employees would be retrained in August 20X1 to work in the remaining restaurants. As at 30 June 20X1, Dolphin Ltd estimated total redundancy payments at $2 million and the retraining costs at $50,000.
Required:
Describe the nature of this event and explain how it should be accounted for in the financial statements of Dolphin Ltd for the year ended 30 June 20X1. Specify any journal entry(ies) and/or disclosures that may be required. Your answer must clearly state your position and provide the evidence that you have used to determine that position. The supporting evidence should include adequate explanation and justification of the accounting treatment required and be supported by references from Australian accounting pronouncements (including paragraph numbers where appropriate). Narrations are not required for any journal entries prepared
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