Professional Research Alchemist Inc

Category: Alchemist, Contract
Last Updated: 06 Jul 2020
Essay type: Research
Pages: 6 Views: 67

Specifically, it says that the existence dad et of the termination plan (I. E. The communication date) occurs when the following critic aria have been met and communicated to employees: (1) management have committed to the term nomination plan, (2) the plan identifies which employees will be terminated and the expected com lotion date, (3) the plan establishes the benefits arrangement in sufficient detail, and (4) it is unlike Ely that the plan will be withdrawn.

In this case, termination plans exist for Plant A and B noon management employees on August 15, 2004 because on this date, each termination plan (1 ) has been approved by the board, (2) identifies the employees to be terminated, (3) identifies the b infinite paid per employee, and (4) is unlikely to change. In other words, August 1 5, 2004 is the communication date for the management termination plans for both Plant A and Plant B.

FAST ASS 42010258 then indicates that if employees will not be retained to r ender service beyond the minimum retention period (I. E. The legal notification period d), then a liability for the termination benefits shall be recognized at the communication date. I n accordance with 42010305, this liability should be measured at its fair value at the communicate ion date.

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Thus, the termination benefits for Plant A management employees, who will not be retained past the day notification period, should be recorded as a liability on August 15, 2 004, measured at the fair value of the benefits as of August 15 Using the example from FAST ASS 42010553, We find that we can multiply the $5,000 per employee by the number Of term anted employees who are expected to remain at the termination date in order to estimate fair v alee.

The expected transaction could be as follows: Termination Benefit Loss Termination Benefit Liability FAST ASS 42010259 States that if employees are required to provide service u until they are terminated in order to receive termination benefits and will be retain De to provide service beyond the minimum retention period, then a liability for the terminate ion benefits should e measured at the communication date. According to FAST ASS 42010306, t his liability should be measured based on the fair value of the liability as of the terminate on date and should be recognized ratable over the future service period.

This applies to the term nation plan at Plant B, where management desires to retain the management employees past the day notification period. Thus, Alchemist should measure a liability for the Plant B management termination benefits on August 15, 2004 and this liability will be measured at TTS fair value as of December 30, 2004 (the termination date). Using the example in FAST ASS 42010555, we find that the fair value of the liability for the termination plan at Plant B can b e found by using an expected present value technique.

Furthermore, the liability should be recognized ratable by Alchemist in each month during the future service period (the daddy period ended 12/30/2004). Now that we have addressed the termination benefits to management e employees, we need to address the severance benefits to management employees at Plant A and B. For the severance benefits paid to management, FAST ASS 71210052 indicates that the benefits fall under the "contractual termination benefits" literature because the benefits a re required if a specified event, such as a plant closing, causes employees to be involuntarily t ruminated.

FAST ASS 71210252 then indicates that an employer who provides contractual term nomination benefits should recognize a liability and a loss when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. In this case, It is probe blew that the liability has been incurred on August 15, 2004 because the termination Of the plant m management is almost retain and the board has stated that the severance benefits will be provided. In addition, the loss can be reasonably estimated because the benefits are outlined by the employ e benefit website.

Thus, Alchemist should recognize a loss and a liability for the management Severna CE benefits on August 15, 2004. In accordance with FAST ASS 71210252, the liability and loss shall include the amount of any lumps payments and the present value of any e expected future payments. The general transaction is shown below: Severance Benefit Loss Severance Benefit Liability Early Termination of the Lease We were then asked to address the appropriate accounting treatment for the early termination of the lease.

FAST ASS 42010251 1 indicates that costs to terminate e an operating lease can include costs that will continue to be incurred under the lease control act when there is no economic benefit to the entity of the lease. This applies in the case of Alchemy SST, who is terminating the use of the plant, but is unable to cancel the operating lease. F CAB ASS 42010308 then states that a liability for these incalculable operating lease co SST should be recognized at the causes date.

Furthermore, FAST ASS 42010308 and 4201 309 indicate that the fair value of the liability at the causes date should be deter mined based on the remaining lease rental payments, adjusted for any prepaid or deferred items, and reduced by estimated sublease rental payments that could be reasonably obtained (whet her or not the entity enters the sublease). For Alchemist, the causes date is December 30, 2004. Thus, on December 30, 2004, Alchemist would recognize a liability equal to the fair value e of the remaining lease payments ($4 million per year) reduced by the estimated subs ease payments ($1 million per year) as of December 30th.

The transaction would be as follows: Rental Expense Rental Liability Other Costs (Plant Security Cost) Lastly, we were asked to address the appropriate accounting treatment for the e security costs associated with protecting plant B premises. FAST ASS 420102514 and 4 20102515 give us a guideline for the recognition of other costs (e. G. Plant security costs) associated with an exit or disposal activity. Since Alchemist anticipates hiring plant securities fate r plant Bi's termination, the estimation of the cost is regarded as a liability and should be recognized in the period when the guarding service is received.

In addition, FAST ASS 4201030 10 indicates that such liability shall be measured at its fair value in the period it is incurred . That is, Alchemist should recognized the incremental cost of $1 after December ere 30, 2014 when the plant B is closed. Disclosure As stated in FAST ASS 42010501, all events related to exit or disposal activities shall be disclosed in notes to financial statements. Therefore, the amount expected to be incurred in connection with employee termination benefits, contract termination costs, a ND other associated costs should be disclosed accordingly.

To be more specific, the total amount e expected to be incurred, the amount incurred in this period, and the cumulative amount incur red to date associated with contractual termination benefits, the operating lease costs, as well as the plan t securities cost, should be disclosed in notes to financial statements. Literature Appendix: Employee Termination Literature 420 Exit or Disposal Cost Obligations 10 overall General 42010051 The Exit or Disposal Cost Obligations Topic addresses financial accounting an reporting for costs associated with exit or disposal activities.

An exit activity in eludes but is not limited to a restructuring 42010052 Those costs include, but are not limited to, the following: a. Involuntary employee termination benefits pursuant to a onetime benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract b. Costs to terminate a contract that is not a capital lease c. Other associated costs, including costs to consolidate or close facilities and relocate employees. Transactions 42010153 The guidance in the Exit or Disposal Cost Obligations Topic applies to the following transactions and activities: a.

Termination benefits provided to current employees that are involuntarily terminated under the terms of a benefit arrangement that, in substance, is not an ongoing been fit arrangement or an individual deferred compensation contract (referred to as onetime employee termination benefits b. Costs to terminate a contract that is not a capital lease (see paragraphs 420102511 through 251 3 for further description of contract termination costs and paragraph 84030401 for terminations of a capital lease) c. Costs to consolidate facilities or relocate employees d.

Costs associated with a disposal activity covered by Subtopic 20520 . Costs associated with an exit activity, including exit activities associated wit h an entity newly acquired in a business combination or an acquisition by a interoffice entity OneTime Employee Termination Benefits 42010254 An arrangement for onetime employee termination benefits exists at the date the plan of termination meets all Of the following criteria and has been com enunciated to employees (referred to as the communication date a. Management, having the authority to approve the action, commits to a plan n of termination.

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