ASC 420 Exit or Disposal Cost Obligations

The Exit or Disposal Cost Obligations Topic addresses financial accounting and reporting for costs associated with exit or disposal activities. An exit activity includes but is not limited to a restructuring.

Those costs include, but are not limited to, the following:

1. Involuntary employee termination benefits pursuant to a one-time benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract
2. Costs to terminate a contract that is not a capital lease
3. Other associated costs, including costs to consolidate or close facilities and relocate employees.

This Topic addresses when to recognize a liability for a cost associated with an exit or disposal activity. An entity’s commitment to an exit or disposal plan, by itself, does not create a present obligation to others that meets the definition of a liability.

Certain postemployment benefit costs that may be associated with exit or disposal activities are covered by other Topics. The accounting for employee termination benefits will differ depending on whether the benefits are provided under a one-time benefit arrangement covered by this Topic or an ongoing benefit arrangement referred to in the following list. As indicated in paragraph 420-10-15-6, this Topic does not change the accounting for termination benefits covered by the following Topics and Subtopics:

1. Postemployment benefits provided through a pension or postretirement benefit plan (Subtopics 715-30 and 715-60 specify the accounting for those costs.)
2. Other nonretirement postemployment benefits covered by Topic 712
3. Special or contractual termination benefits covered by paragraphs 715-30-25-10 and 715-60-25-4 through 25-6 Individual deferred compensation arrangements that are addressed by paragraph 710-10-15-4(c)
4. Stock compensation plans addressed by Topic 718.