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2. Provisions: Restructuring Drum is an entity that prepares financial statements to 30 June each year. On 30 April 2020, the directors decided to discontinue the business of one of Drum's operating divisions. They decided to cease production on 31 July 2020, with a view to disposing of the property, plant and equipment soon after 31 August 2020. On 15 May 2020, the directors made a public announcement of their intentions and offered the employees affected by the closure termination payments or alternative employment opportunities elsewhere in the group. Relevant financial details are as follows: (a) On 30 April 2020, the directors estimated that termination payments to employees would total 15 million and the costs of retraining employees who would remain employed by other group companies would total 1.5 million. Actual termination costs paid out on 31 July 2020 were 15.6 million and the latest estimate of total retraining costs is 700,000. (b) Drum was leasing a property under a rental lease agreement that expires on 30 September 2022. On 30 June 2020, the present value of the future lease rentals (using an appropriate discount rate) was 6 million. On 31 August 2020 Drum made a payment to the lessor of 5.5 million in return for early termination of the lease. There were no rental payments made in July or August 2020. (c) The loss after tax of Drum for the year ended 30 June 2020 was 14.4 million. Drum made further operating losses totalling 6 million for the two-month period 1 July 2020 to 31 August 2020. Required: Explain how the provision that is required in the financial statements of Drum at 30 June 2020 in respect of the decision to close is calculated. Recommended word count: 375 words 2. Provisions: Restructuring Drum is an entity that prepares financial statements to 30 June each year. On 30 April 2020, the directors decided to discontinue the business of one of Drum's operating divisions. They decided to cease production on 31 July 2020, with a view to disposing of the property, plant and equipment soon after 31 August 2020. On 15 May 2020, the directors made a public announcement of their intentions and offered the employees affected by the closure termination payments or alternative employment opportunities elsewhere in the group. Relevant financial details are as follows: (a) On 30 April 2020, the directors estimated that termination payments to employees would total 15 million and the costs of retraining employees who would remain employed by other group companies would total 1.5 million. Actual termination costs paid out on 31 July 2020 were 15.6 million and the latest estimate of total retraining costs is 700,000. (b) Drum was leasing a property under a rental lease agreement that expires on 30 September 2022. On 30 June 2020, the present value of the future lease rentals (using an appropriate discount rate) was 6 million. On 31 August 2020 Drum made a payment to the lessor of 5.5 million in return for early termination of the lease. There were no rental payments made in July or August 2020. (c) The loss after tax of Drum for the year ended 30 June 2020 was 14.4 million. Drum made further operating losses totalling 6 million for the two-month period 1 July 2020 to 31 August 2020. Required: Explain how the provision that is required in the financial statements of Drum at 30 June 2020 in respect of the decision to close is calculated. Recommended word count: 375 words