Accounting for Pharma Co.’S Restructuring Program of Relocating a Manufacturing Operation Including Terminating Certain Employees Under Ifrss and Gaap.

2546 Words Nov 16th, 2012 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 different geographic area. The relocation plan would
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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.

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