Pharma, Co

617 Words Mar 31st, 2012 3 Pages
Solution for the Case 10-3 - Restructuring Cost

Pharma Co. should account for the restructuring program in different ways for the U.K parent and to U.S.-based lender.

A. With respect to IFRS, company should use IAS 19 and 37.

According to the IAS 19, paragraphs 133 and 134, entity should recognize termination benefits when company terminates the employment of employees before normal retirement date and company has detailed formal plan for termination. This plan should include the location, function and number of employees whose services are to be terminated. The entire $3 million should be recognized as termination benefits according IAS 19, paragraph 135. After Inter-Office Memorandum from December 27, 2010 (appendix B)
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ASC 42-10-25-8 states that entity should recognize obligation related to the termination of employees, the liability for termination benefits should be recognized at the communication date. According to ASC 42-10-30-4 through 30-6 this liability shall be measured at its fair value. In this case, Pharam Co. will not show the liability of $3 million for the termination benefits on its December 31, 2010 Balance Sheet.

The cost of $1.3 million related to early lease termination should not be included as liability on the Pharma Co. December 31, 2010 Balance Sheet. According to ASC420-10-25-12, a liability for costs related to termination of the operating lease before the end of its term shall be recognized when contract is terminated. The termination date of the contract could be the date of written notice sent to the counterparty or the date when entity negotiated a termination with the counterparty. In this case, the date of termination is not stated

ASC 420-10-25-15 states that liabilities for other costs associated with the exit or disposal activity (420-10-25-14) shall be recognized when the liability is incurred. In our case, liability related to the relocation cost of $500,000 and staff training cost of $1.5 million, must be recognized by Pharma Co. later, when these costs will incur.

In the same way should be treated cost of $1 million related to dismantlement of the existing manufacturing operation. According to the ASC 420-10-24-14, this cost
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