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Resructuring Cost Essay

867 words - 4 pages

IFRS Case

Re structuring Costs

Pharma Co. (Pharma or “the Company”) 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 is in the process of 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.

IAS 37 includes guidance for accounting for restructuring costs in accordance with IFRS. Paragraph 10 ...view middle of the document...

3. 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.

4. 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.

Re quire d:

• In reporting to its U.K. parent under IFRSs, how should Pharma account for the above restructuring program for the year ended December 31, 2014?

• In reporting to its U.S.-based lender in accordance with U.S. GAAP, how should
Pharma account for the restructuring program for the year ended December 31,
2014?

APPENDIX A

Press Release

Pharma Co. Announces Early Lease Termination

Tulsa – 12/15/2014 – Pharma Co., a leading pharmaceutical developer, today announced its plan to terminate the lease on its Plant A facility located in Bellvue, Oklahoma, as part of its management restructuring and cost-cutting measures. Earlier today, Pharma Co. entered into an oral agreement with the lessor to terminate the lease. The lease termination fee is $1.3 million.

The lease agreement was originally entered into in February 2008 and provided for Pharma Co. to occupy 100 percent of a 146,300-square-foot building in the Bellvue area of Tulsa with a term of 10 years.

Pharma...

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