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

In: Business and Management

Submitted By lily22
Words 2559
Pages 11
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 include terminating certain employees. Pharma Co. has taken the following actions for the restructuring: 1. On December 15, 2010, Pharma. Co. issued a press release announcing its intentions to terminate its operating lease. The lease agreement stipulates that written notice is required for early termination. The lease termination fee is $1.3 million. The company plans to vacate the leased plant and sign the lease termination agreement on January 31, 2011. 2. On December 27, 2010, Pharma Co. management communicated the one-time termination plan to its employees. The plan involves a reduction of approximately 120 employees. The workforce reduction is expected to be complete by January 31, 2011, and is expected to cost approximately $3 million. 3. Pharma Co. will incur a relocation cost of $500,000 and staff training cost of $1.5 million. Further, Pharma Co. 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. The company has, in a press release,…...

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