Premium Essay


In: Business and Management

Submitted By R0yalti1
Words 1677
Pages 7
Pharma Co

Date: June 18, 2016

Prepared by: John B. Owens

Viewed by: Joseph Walsh

Issue: Determine proper accounting treatment for restructuring program costs under GAAP for the year ended December 31, 201X.

Background: Pharma is in the process of restructuring a business line. As part of a restructuring, the Pharma is considering the relocation of a manufacturing operation from its present location to a new facility in a different geographic area. The relocation plan would include terminating certain employees (research and development employees). On December 15, 201X, Pharma issued a press release announcing its intentions to terminate the lease of the old facility. On December 27, 201X, Pharma management communicated the main features of a one-time, non-voluntary termination plan to its employees. Pharma will incur a relocation cost of $500,000 and staff training cost of $1.5 million. Further, the Company has entered into irrevocable contracts with certain other relevant parties to affect the restructuring plan over the following 18 months. The cost to dismantle the existing manufacturing operation is estimated to be $1 million. In the jurisdiction in which Pharma operates its current facility, there is no legal obligation for dismantling plants when abandoned. Pharma has not historically dismantled its plants when abandoned but decided to make an exception. In a press release, the Company has stated its intention to dismantle the existing operation. The costs to reassemble the operation in the new facility have not yet been finalized

Accounting Questions: 1. Should Pharma Co. recognize a liability as of December 31, 2014 when the Company intends to terminate a lease early but has not met all contractual requirements for early termination? 2. How should the one time employee termination benefits be accounted for under GAAP?...

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