Ramson Retailers operates a chain of retail stores. The accountant has come to you for advice about a number of financial reporting issues that have been raised at a meeting of the board of directors. Do these transactions and events meet the Framework 2014 definitions of assets, liabilities, equity, income or expenses? (a) Ramson's stores have been in operation for five years and during that period have had to pay only one claim to a customer who was injured as a result of slipping and falling on a wet floor. The claim was settled by Ramson for $50000. On the basis of that experience, the board of directors has proposed charging $10000 each year as an expense and recognising a corresponding liability that would grow in amount to $50000 at the end of five years. (b) The managing director of Ramson has resigned and has signed a restrictive covenant in which he has agreed not to work in competition with Ramson for a period of five years. The company paid the former managing director an amount of $100000 in respect of the agreement. The board of directors has proposed that this restrictive covenant should be recognised as an asset. (c) Due to the recession, it has been decided to reduce staffing levels by offering voluntary redundancy packages to 400 of its employees. After agreement was reached with the unions, letters were sent to all employees shortly before the end of the reporting period inviting applications for the package. A response was required within 30 days, which was after the end of the reporting period. The board estimates that the redundancies will cost the company $3 million. (L01, LO2, LO5, LO7, LO9, LO10, LO12) Ramson Retailers operates a chain of retail stores. The accountant has come to you for advice about a number of financial reporting issues that have been raised at a meeting of the board of directors. Do these transactions and events meet the Framework 2014 definitions of assets, liabilities, equity, income or expenses? (a) Ramson's stores have been in operation for five years and during that period have had to pay only one claim to a customer who was injured as a result of slipping and falling on a wet floor. The claim was settled by Ramson for $50000. On the basis of that experience, the board of directors has proposed charging $10000 each year as an expense and recognising a corresponding liability that would grow in amount to $50000 at the end of five years. (b) The managing director of Ramson has resigned and has signed a restrictive covenant in which he has agreed not to work in competition with Ramson for a period of five years. The company paid the former managing director an amount of $100000 in respect of the agreement. The board of directors has proposed that this restrictive covenant should be recognised as an asset. (c) Due to the recession, it has been decided to reduce staffing levels by offering voluntary redundancy packages to 400 of its employees. After agreement was reached with the unions, letters were sent to all employees shortly before the end of the reporting period inviting applications for the package. A response was required within 30 days, which was after the end of the reporting period. The board estimates that the redundancies will cost the company $3 million. (L01, LO2, LO5, LO7, LO9, LO10, LO12)
