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Dear tutor,
The ACCA suggested answer says:
“staff costs have increased slightly by 1·1% which seems inconsistent with the revenue trend and with the increased automation of operations which has led to 5,000 staff being made redundant, which presumably means lower payroll costs this year. Expenses could have been misclassified into staff costs in error.”I do not agree with this comment as the redundancy was at the start of the year. For redundancies, companies need to pay for around 12 months salaries so that the redundant staff agree and find another job in the next 12 months. So staff cost has slightly increased by 1.1% which is fine as salaries are not linked in any way with the reduced revenue of 3.7%.
It is also possible that the client had already provided for redundancy in last year. If this is the case then the ACCA comments are fine as staff cost should be lower than last year’s big figure.
Your comments needed.
Thanks and regards,
I don’t know of any country that offers such generous redundancy terms as you are suggesting. In the UK, for example, redundancy is paid on the basis of age and week’s pay for each continuous year of service. For someone who is 30, they would be entitled to one week’s pay, to a maximum of £525 a week, for each year of service. So they would get 12 weeks’ pay if they have been working for the same employer since they were 18. But they will get only 2 weeks’ pay if they have been in that employment for only 2 years. Also, anyone with the company for less than 2 years has NO entitlement to redundancy. The absolutely maximum, for someone who would have to be in their 50s if they started in that work at 18, is 30 weeks x 1.5 – so yes that is nearly a year, but that is exceptional. (And also capped at a weekly amount that would be less than a salary for someone of that experience.)
You have to remember that answers are only illustrative.
Ok. Thanks,
Also the presentation of the “other operating income” in “Statement of Profit or Loss” coming after revenue is fine or it needs to be after operating profit?
Regards,
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