10.3 Restructuring and Impairment Charges

At the time of the creation of a joint venture and a contribution of assets or businesses, or both, from the venturers, certain restructuring and impairment charges may occur. Examples of events that cause these charges include plans to reduce the workforce or to close certain operations. These restructurings and impairments are often an integral part of the negotiation between the venturers. It is critical to determine whether the venturer or the joint venture should bear the cost of restructuring activities related to assets or businesses, or both, contributed to the joint venture. A venturer cannot avoid an impairment of assets that would otherwise be required under U.S. GAAP by contributing the assets to a joint venture. The parties should exercise significant judgment to determine whether the restructuring costs are the responsibility of the venturer or the joint venture. If after formation, the joint venture decides to restructure operations of the contributed plant and such restructuring is not contemplated in the joint venture formation, the restructuring costs should be recognized in the accounts of the joint venture (see Section 9.4.3.1 for information on identifying transactions outside the joint venture formation).