ASC Topic 420
Exit or Disposal Cost Obligations
Source downloaded: .Record version 23a1cfee7098. Effective date must be checked in the source.
ASC 420 governs liabilities for costs of exit or disposal activities (restructurings) — one-time involuntary employee termination benefits, costs to terminate non-lease contracts, and other associated costs like facility closure and relocation. Its central idea is that a liability is recognized only when it is incurred, i.e., when a present obligation exists, and is measured initially at fair value; merely committing to an exit plan is not the requisite past event (420-10-25-1 through 25-2, 420-10-30-1). Timing rules turn on facts: one-time termination benefits are recognized at the communication date if no future service is required (or service will not extend beyond the minimum retention period, capped at the legal notification period or 60 days), but are recognized ratably over the service period if employees must render service beyond that period (420-10-25-7 through 25-9, 30-5, 30-6); contract termination costs are recognized on termination or at the cease-use date for costs continuing with no economic benefit (420-10-25-11 through 25-13). Subsequent revisions in cash flow timing or amount are remeasured using the original credit-adjusted risk-free rate, and passage-of-time changes are accretion expense, not interest cost (420-10-35-1 through 35-4, 45-5), with extensive disclosure including a rollforward by major cost type (420-10-50-1).
Subtopics
- 10Overall80 ¶
ASC 420-10 governs when and how an entity recognizes and measures liabilities for costs of exit or disposal activities (restructurings), including one-time involuntary employee termination benefits, costs to terminate non-lease contracts, and other associated costs such as facility closures and employee relocation. The core rule is that a liability is recognized only when it is incurred — i.e., when a present obligation exists — and measured initially at fair value; a mere commitment to an exit or disposal plan is not the requisite past event (420-10-25-1 through 25-2, 420-10-30-1). Ongoing termination-benefit arrangements, pension/OPEB special termination benefits, deferred compensation, stock compensation, and asset retirement obligations are excluded and handled under other Topics (420-10-15-5 through 15-6).