Accounting

Recognition Of Wrongful Termination Benefits Payable In FS

A company decided to close down a branch of the company’s operations when the lease expired in the following February. The chief financial officer advised that termination benefits of $2.0 million are likely to be paid. Should a company recognize a liability for wrongful termination benefits payable in its financial statements as per IAS 19.

  A liability for wrongful termination benefits should be recognized:

when the entity has become demonstrably committed.  There is evidence that the company had a detailed plan for soon, because the location and timing of implementation had been identified.  It is likely that the function and approximate number of affected employees had been determined as these factors ought to have formed part of the basis of the chief financial officer’s estimation of the amount of wrongful termination benefits payable.  However, it seems unlikely that the company has no reasonable possibility of withdrawing.

Some tips on Lease Contracts: Although the lease is due to expire in the following February, there is no indication that it could not be renewed.  Further, there does not appear to have been any communication of the plan to affected parties.  It seems that at 30 June 2013 the Board of Directors of the company were still able continue to operate the branch if they chose to do so.  Accordingly, company should not recognize a liability for wrongful termination benefits in its financial statements for the year ended 30 June 2013

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