Accounting For Pharma Co.’s Restructuring Program Of Relocating A Manufacturing Operation Including Terminating Certain Employees Under Ifrss And Gaap

2576 words - 11 pages

Pharma Co.
Date: October 8, 2012
Prepared by: Lily Xu
Reviewed by: Professor Dennis Goodman

ISSUE: Accounting for Pharma Co.’s restructuring program of relocating a manufacturing operation including terminating certain employees under IFRSs and GAAP.

BRIEF BACKGROUND
Pharma Co. is a U.S. subsidiary of a U.K. entity that prepares its financial statements in accordance with (1) U. S GAAP for reporting to its U. S.-based lender and (2) IFRSs in reporting to its parent. Pharma. Co is in the process of restructuring a business line. As part of the restructuring, Pharma Co. is considering the relocation of a manufacturing operation from its present location to a new facility in a ...view middle of the document...

The costs to reassemble the operation in the new facility have not yet been finalized.

ISSUES
1. Does Pharma. Co.’s relocation plan meet the definition for restructuring accounting treatment under IFRSs and GAAP?
2. Should Pharma. Co. recognize the lease termination liability for the year ended December 31, 2010 under IFRSs and GAAP?
3. Should Pharma. Co. recognize the one-time termination liability for the year ended December 31, 2010 under IFRSs and GAAP?
4. Should Pharma. Co recognize the relocation, staff training, irrevocable contract, and reassembling cost for the year ended December 31, 2010 under IFRSs and GAAP?
5. Should Pharma. Co recognize the dismantling cost for the year ended December 31, 2010 under IFRSs and GAAP?

SUMMARY CONCLUSION ON ISSUES
1. Pharma. Co.’s relocation plan meets the definition for restructuring accounting treatment under IFRSs and GAAP.
2. Pharma. Co. should recognize the lease termination liability for the year ended December 31, 2010 under IFRSs, but should not recognize it under GAAP.
3. Pharma. Co should recognize the one-time termination liability for the year ended December 31, 2010 under IFISs and GAAP.
4. Pharma. Co should not recognize the relocation, training, irrevocable contracts, and resembling cost for the year ended December 31, 2010 under IFRSs and GAAP.
5. Pharma. Co should recognize the dismantling cost for the year ended December 31, 2010 under IFRSs, but should not recognize it under GAAP.

AUTHORITATIVE AND INTREPRETIVE GUIDANCE
Refer to IAS 37 Paragraph 10 (Definition of restructuring)
Refer to IAS 37 Paragraph 70 (examples of events that may fall under the definition of restructuring)
Refer to ASC 420-10-05-1(General concept of restructuring)
Refer to ASC 420-10-15-4 (Activity includes but is not limited to a restructuring)
Refer to IAS 37 Paragraph 14 (the general recognition criteria for provisions)
Refer to IAS 37 Paragraph 80 (A restructuring provision shall include only the direct expenditures arising from the restructuring)
Refer to ASC 420-10-25-11; ASC 420-10-25-12 (Recognition of Contract Termination Costs)
Refer to ASC 715-30-60-4 (Definition of one-time termination benefit)
Refer to ASC 420-10-25-4 (Recognition of One-Time Employee Termination Benefits)
Refer to ASC 420-10-25-8 (Recognition of One-Time Employee Termination Benefits)
Refer to ASC 420-10-30-5 (Measurement of One-Time Employee Termination Benefits)
Refer to IAS 37 Paragraph 81(activities that a restructuring provision does not include)
Refer to FASB concept statement no. 6 paragraph 35 (Definition of liability)
Refer to ASC 420-10-25-14; ASC 420-10-25-15 (Recognition of other costs associated with restructuring activity)
Refer to ASC 420-10-50-1(Required financial statement disclosure)

DETAILED DISCUSSION, ANALYSIS& REASONS FOR CONCLUSION
ISSUE 1
1. Pharma Co.’s relocation plan meets the definition of restructuring for the year ended December 31,...

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