📖 Overview
ASC 420 provides guidance on accounting for costs associated with exit or disposal activities, including one-time termination benefits, contract termination costs, and other associated costs.
🎯 Scope
Applies to exit activities (disposal of long-lived assets, closure of facilities) and disposal activities (sale of a business). Does not apply to ongoing severance plans or costs covered by other standards (ASC 450, ASC 712).
⚙️ Key Principles
1. Recognition: A liability for exit costs is recognized when the liability is incurred, not when the decision is made.
2. One-time Termination Benefits: Recognized when the plan is communicated and accepted by employees.
3. Contract Termination Costs: Recognized when the contract is terminated.
4. Other Associated Costs: Recognized as incurred.
📏 Measurement
Measured at fair value at recognition date. Termination benefits measured based on employee agreements. Contract termination costs measured at remaining obligations.
✅ Recognition
Recognized when a liability is incurred (not before). For one-time termination benefits: recognized when plan is communicated and accepted.
📊 Presentation
Presented as current or non-current liability based on expected payment date. Usually classified as accrued liabilities or other payables.
📝 Disclosure Requirements
Disclose: Nature of the exit plan, timing of expected costs, measurement assumptions, and any changes in estimates.
🔗 Related Standards
ASC 450 (Contingencies), ASC 712 (Non-retirement Postemployment Benefits), ASC 360 (PPE)