Suktor is an entity that prepares financial statements to 30 June each year.
On 30 April 20X1 the directors decided to discontinue the business of one of Suktor's operating divisions. They decided to cease production on 31 July 20X1, with a view to disposing of the property, plant and equipment soon after 31 August 20X1.
On 15 May 20X1 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 20X1 the directors estimated that termination payments to employees would total $12 million and the costs of retraining employees who would remain employed by other group companies would total $1.2 million. Actual termination costs paid out on 31 May 20X1 were $12.6 million and the latest estimate of total retraining costs is $960,000.
(b) Suktor was leasing a property under an operating lease that expires on 30 September 20Y0. On 30 June 20X1 the present value of the future lease rentals (using an appropriate discount rate) was $4.56 million. On 31 August 20X1 Suktor made a payment to the lessor of $4.56 million in return for early termination of the lease. There were no rental payments made in July or August 20X1.
(c) The loss after tax of Suktor for the year ended 30 June 20X1 was $14.4 million. Suktor made further operating losses totalling $6 million for the two-month period 1 July 20X1 to 31 August 20X1.
Required:
Compute the provision that is required in the financial statements of Suktor at 30 June 20X1 in respect of the decision to close.