Accounting For The Restructuring Costs Of Lay ' M Off Co.

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Re: Accounting for the restructuring costs of Lay’m-Off Co. Facts Lay’m-Off Co. (Lay’m-Off or the “Company”), a pharmaceutical company, is restructuring a business line. As part of the restructuring, the Company 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. On December 27, 2011, Lay’m-Off management communicated the main features of a onetime, nonvoluntary termination plan to its employees. The Company estimates that the one-time termination benefit is $3 million for a total benefit of 12 weeks’ pay. Additionally, the facility manager’s facility will receive an additional lump-sum …show more content…

ASC 420-10-15-3c states that the guidance of this topic applies to the transaction of “Costs to terminate a contract that is not a capital lease…” Lay’m-Off accounts for its lease of Plant A as an operating lease, therefore this transaction is also governed by topic ASC 420-10. ASC 420-10-25-12 provides guidance for the recognition of costs to consolidate or close facilities as follows: A liability for costs to terminate a contract before the end of its term shall be recognized when the entity terminates the contract in accordance with the contract terms (for example, when the entity gives written notice to the counterparty within the notification period specified by the contract or has otherwise negotiated a termination with the counterparty). In this case, in order to recognize the liability of the lease termination cost Lay’m-Off must submit a written notice to the lessor. Lay’m-Off only entered into an oral agreement with the lessor to terminate the lease, and as of December 31, 2011 there is not available information that they did submit such letter. Therefore, the liability will not be included in the year ended December 31, 2011 financial statements. Consequently, the liability should be recorded on January 31, 2012, when the company signs the lease termination agreement. Analysis – Issue 2: How should Lay’m-Off account for the restructuring costs of relocation and staff training costs? ASC 420-10-15-3c states that the guidance on this topic

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