Plant A Case Study

432 Words2 Pages
October 9, 2013 With managements recent restructuring and cost-cutting measures, Pharma Co. is experiencing problems accounting for the restructuring costs of terminating Plant A as of December 31, 2011. The termination of Plant A will bring several significant costs we will need to account for. One of the first costs we will encounter is the cost of terminating the lease with a fee of $1.3 million. On January 31, 2012 we are planning to vacate the facility and at the same time sign the lease termination agreement. Under ASC 420-10-25-12, a liability for costs to terminate a contract should be recognized when the entity terminates the contract in accordance with the contract terms. For example, a liability exists when an entity gives written notice to counterparty within the notification period or has otherwise negotiated a termination with the counterparty. We have already negotiated termination with the counterparty on the date of press release, and therefore, will have to account for the termination of the lease fee as of December 31, 2011. Upon terminating the lease, we will still incur costs until the cease-use date is arrived on January 31, 2012. The cease-use date is defined as the date an entity ceases the right to use…show more content…
This reduction is expected to be completed by January 31, 2012 and will approximately cost $3 million dollars. The cost of terminating employees shall not be recorded in the year ended December 31, 2011. ASC 420-10-25-4 says, “An arrangement for one-time employee termination benefits exists at the date the plan meets all of the following criteria and has been communicated to employees.” Following these guidelines we do not meet requirements, because we have not communicated to the employees the benefits they will receive upon termination and Pharma Co. hasn’t specified the job classification of the 120 employees. Otherwise, this cost will be recognized when incurred at fair

More about Plant A Case Study

Open Document