Reference no: EM132928038

While closing the accounts for Becca Industrial Supplies Pte Ltd for the financial year ended 31 December 2020, James discovered the following information and would like to seek your advice on how to handle each of them. The 2020 financial statements were issued on 1 April 2021.

(a) The board of directors decided on 7 December 2020 to move one of the factory operations to Malaysia. The company has a practice of paying retrenchment benefits to employees who are affected by its relocation plans. Employees were informed of the impending relocation on 22 December 2020 but no details on the retrenchment benefits were provided. $1.3m in retrenchment benefits were paid to affected employees when the factory was closed on 3 January 2021.

(b) An ex-employee filed a lawsuit against Becca on 22 September 2020, citing unlawful dismissal. She is seeking $650,000 in damages. On 31 December 2020, the company's lawyers advised that it is probable that the company will lose the case but that damages would be about $500,000.

(c) In October 2020, one of Becca's suppliers brought legal action against the company in relation to a previous price dispute. As at 31 December 2020, Becca was advised by their lawyers that a claim of up to $120,000 could be made against Becca. However, the lawyers are of the view that it is unlikely that the suppliers' action would be successful.

Required:

Problem (i) Advise James on how each of the above situations should be treated, giving appropriate explanation.

Problem (ii) Prepare journal entries where needed and state whether a disclosure note should be included.