Question Tag: Redundancy

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  • 3 Marks

BL – May 2015 – L1 – SB – Q6e – Employment Law

Identify situations when an employee is entitled to redundancy benefits.

State any THREE instances in which an employee may be entitled to redundancy benefits. (3 Marks)

Redundancy benefits may be payable to an employee in any of the following instances:

  1. Where the number of employees is more than the available jobs, and the employer has agreed to the payment with the employees’ trade union.
  2. The employer has ceased or intends to cease to carry on the business for which the employee was employed.
  3. The employer has ceased, or intends to cease, to carry on the business in the place where the employee was employed.
  4. If there is provision for redundancy payment to employees in the conditions of service and the prescribed conditions are satisfied​
  • 5 Marks

CR – Nov 2018 – L3 – Q2a – Non-current assets held for sale and discontinued operations

Discuss the financial reporting issues for Builsa Ltd regarding the planned closure of a division and the redundancy of employees under IFRS 5.

Builsa Ltd (Builsa) is a listed company that assembles personal computers (PCs), and it is preparing its financial statements for the year ended 31 May 2018. Builsa plans to close down one of its divisions. This division, which is classified as a separate business segment, will cease all of its activities on 31 July 2018. Most of the assets of the business will be redeployed elsewhere in Builsa’s business; however, some smaller items of plant will be sold off or scrapped. Approximately half of the staff of the division will be made redundant, and they were notified of the decision in late May 2018. Customers and suppliers were notified at the same time. The annual 2018 financial statements are scheduled to be released to the markets on 9 August 2018.

Required:
Advise the directors as to the financial reporting issues arising from the above matters and explain the appropriate treatment in Builsa’s financial statements in each case.

  1. Discontinued Operations – IFRS 5:
    • The closure of the division must be assessed for classification as a discontinued operation. Under IFRS 5, a discontinued operation is defined as a component of an entity that has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations.
    • Since the division is classified as a separate business segment and will cease all activities, it can be considered a discontinued operation for financial reporting purposes, assuming all relevant criteria are met. However, since most assets will be redeployed rather than sold, this may not fully meet the definition of held for sale.
    • The smaller assets that are to be sold or scrapped may be classified as assets held for sale under IFRS 5 if they meet the relevant criteria.
  2. Provision for Redundancy – IAS 37:
    • A provision for redundancy costs should be recognized under IAS 37 if a constructive obligation exists at the year-end. Since the decision has been communicated to the employees in late May 2018, and individual employees have been identified for redundancy, a provision for redundancy costs should be recognized in the financial statements for the year ended 31 May 2018.
  3. Non-adjusting Event – IAS 10:
    • The division’s closure is scheduled for 31 July 2018, after the reporting date of 31 May 2018. Since the closure has a significant impact on the business, it should be disclosed as a non-adjusting event in the 2018 financial statements under IAS 10 (Events After the Reporting Period), as it does not adjust the financial position as of the reporting date but is material and must be disclosed.

Conclusion:

  • The closure of the division should be treated as a discontinued operation only if the assets are classified as held for sale. Otherwise, certain assets may qualify as held for sale, and a provision for redundancy costs should be made. Additionally, the event should be disclosed as a non-adjusting event due to its materiality.
  • 10 Marks

BCL – Nov 2017 – L1 – Q5a – Employment Law

Outline the steps an employer should take when introducing major changes leading to redundancy.

a) What steps should an employer take when introducing major changes that will entail the termination of employment of workers in an undertaking? (10 marks)

When an employer introduces major changes that may result in redundancy, they must take the following steps:

  • Notify the Chief Labour Officer and the Trade Union Concerned: The employer must write to the Chief Labour Officer and the relevant trade union no later than three (3) months before the contemplated change. (2 marks)
  • Provide Relevant Information: The employer must provide all relevant information, including the reasons for any termination, the number and categories of workers likely to be affected, and the period within which the termination is to be carried out. (2 marks)
  • Consult with the Trade Union: The employer should consult with the trade union concerned on measures to be taken to avert or minimize the termination. (2 marks)
  • Mitigate Adverse Effects: The employer should consult the trade union on measures to mitigate the adverse effects of any terminations on the workers concerned, such as finding alternative employment. (2 marks)
  • Negotiate Redundancy Pay: The employer should negotiate with the workers or their representatives on the amount of redundancy pay and the terms and conditions of payment. (2 marks)

(Total: 10 marks)

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