PROBLEM NO.

2 Restructuring Provisions
Axe Company’s directors decided on November 1, 2018 to restructure the entity’s operations as follows:
 Factory A would be closed down and put on the market for sale.
 Employees working in Factory A would be retrenched on November 30, 2018, and would be paid
their accumulated entitlements plus six months’ wages.
 Some employees working in Factory A would be transferred to Factory B, which would continue
operating.
 On December 31, 2018, the following transactions and events had occurred:
 The retrenched employees have left and their accumulated entitlements have been paid.
However, an amount of ₱1,000,000, representing a portion of the six months’ wages for
the retrenched employees, has still not been paid.
 Costs of ₱300,000 are expected to be incurred in transferring the remaining employees to
their new work in Factory B. The transfer is planned for January 5, 2019.
 One employee, Crystal Maiden, remains in order to complete administrative tasks
relating to the closure of Factory A and the transfer of employees to Factory B. Crystal
Maiden is expected to stay until January 31, 2019. Her salary for January will be ₱50,000
and her retrenchment package will be ₱150,000, all of which will be paid on the day she
leaves. Crystal Maiden would spend 60% of her time administering the closure of Factory
A, 30% on administering the transfer of employees to Factory B, and the remaining 10%
on general administration.

1. What total amount should be recognized as restructuring provision on December 31, 2018?

a. ₱1,480,000 c.  ₱1,500,000

b. ₱1,200,000 d.  ₱1,180,000