# ASC 420-10-25: Exit or Disposal Cost Obligations — Overall — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/420/10/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:d80c1afb9998819151d0b152fc777fdfa2abd4d839ca93260dd3ea2db94cd0ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 420-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/420/10/#25-recognition) SEC content: no #### Determining When to Recognize a Liability ##### [420-10-25-1](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:af007488c8577a4ff1882d92a7e081318c5712ecaa4b1b4280eca33cb2002b17 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability for a cost associated with an exit or disposal activity shall be recognized in the period in which the liability is incurred, except as indicated in paragraphs [420-10-25-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-6) and [420-10-25-9](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-9) (for a liability for [one-time employee termination benefits](https://asc.understandingaccounting.org/glossary/o/#one-time-employee-termination-benefits "Benefits provided to current employees that are involuntarily terminated under the terms of a one-time benefit arrangement.") that is incurred over time). In the unusual circumstance in which fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated (see paragraphs [420-10-30-1 through 30-3](https://asc.understandingaccounting.org/asc/420/10/#420-10-30-1) for fair value measurement guidance). ##### [420-10-25-2](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-2) Pending content: yes Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:cdf5da8b55850e34ed629d1ddb49c53b074057f4e075e2817daa30e9765a7f3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability for a cost associated with an exit or disposal activity is incurred when the definition of a liability included in FASB Concepts Statement No. 6, Elements of Financial Statements, is met. Only present obligations to others are liabilities under the definition. An obligation becomes a present obligation when a transaction or event occurs that leaves an entity little or no discretion to avoid the future transfer or use of assets to settle the liability. An exit or disposal plan, by itself, does not create a present obligation to others for costs expected to be incurred under the plan; thus, an entity's commitment to an exit or disposal plan, by itself, is not the requisite past transaction or event for recognition of a liability. Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9) A liability for a cost associated with an exit or disposal activity is incurred when a transaction or event occurs that creates a present obligation of an entity to transfer an economic benefit. An exit or disposal plan, by itself, does not create a present obligation to others for costs expected to be incurred under the plan; thus, an entity's commitment to an exit or disposal plan, by itself, is not the requisite past transaction or event for recognition of a liability. ##### [420-10-25-3](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:d0f0d8769fe30bcf64784c7ac354300fd818b05d6bf3c19ac3319c024b3b09aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic requires that future operating losses expected to be incurred in connection with an exit or disposal activity be recognized in the period(s) in which they are incurred. Because future operating losses are the summation of individual items of revenue and expense that result from changes in assets and liabilities, those expected losses, in and of themselves, do not meet the definition of a liability. #### One-Time Employee Termination Benefits ##### [420-10-25-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:5f0a02fc051af51b1b28cb231f0c9ec89cf663dc043facd2e4267e2ba0456c4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An arrangement for [one-time employee termination benefits](https://asc.understandingaccounting.org/glossary/o/#one-time-employee-termination-benefits "Benefits provided to current employees that are involuntarily terminated under the terms of a one-time benefit arrangement.") exists at the date the plan of termination meets all of the following criteria and has been communicated to employees (referred to as the [communication date](https://asc.understandingaccounting.org/glossary/c/#communication-date "The date the plan of termination for one-time employee termination benefits meets all of the criteria in paragraph 420-10-25-4 and has been communicated to employees.")): 1. a Management, having the authority to approve the action, commits to a plan of termination. 2. b The plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date. 3. c The plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination (including but not limited to cash payments), in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated. 4. d Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. ##### [420-10-25-5](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:1cd2c2acd7d7514eff5f26ca2965e681bdce4fe7cd249dd4fbfeda6a42ce4804 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity's communication of a promise to provide one-time employee termination benefits is a promise that creates an obligation at the communication date to provide the termination benefits if employees are terminated. ##### [420-10-25-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:a5925cd3d8c0425080c9f28d928f68a40dbd78a3fa649cb25314e71dc6071035 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The timing of recognition for one-time employee termination benefits depends on whether employees are required to render service until they are terminated in order to receive the termination benefits and, if so, whether employees will be retained to render service beyond a minimum retention period. ##### [420-10-25-7](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:b8730236dbba35a7bb054602d3828d2f4a77c80539baa0557046b5e50d76b58d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The minimum retention period shall not exceed the [legal notification period](https://asc.understandingaccounting.org/glossary/l/#legal-notification-period "The notification period that an entity is required to provide to employees in advance of a specified termination event as a result of an existing law, statute, or contract."), or in the absence of a legal notification requirement, 60 days. For example, in the United States, the Worker Adjustment and Retraining Notification Act, as of 2002 required entities with 100 or more employees to notify employees 60 days in advance of covered plant closings and mass layoffs, unless otherwise specified. Collective bargaining or other labor contracts may require different notification periods. ##### [420-10-25-8](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:44a9c5c390cce9e07fba58fa3c7658a1c4a8c26d31fcc5bbd1954a50c22b5441 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If employees are not required to render service until they are terminated in order to receive the termination benefits (that is, if employees are entitled to receive the termination benefits regardless of when they leave) or if employees will not be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be recognized at the communication date. For an illustration of this situation, see Example 1 (paragraph [420-10-55-2](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-2)). ##### [420-10-25-9](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:6810228f064924cc20ba8ffa054f02b163359d951bf77ca14c19aba4fe533790 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As indicated in paragraph [420-10-30-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-30-6), if employees are required to render service until they are terminated in order to receive the termination benefits and will be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date, and shall be recognized ratably over the future service period. For an illustration of this situation, see Example 2 (paragraph [420-10-55-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-4)). ##### [420-10-25-10](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:87efd383d3dee8e9ca1b9763121b7286c6c0f620dcead018e120e2a9ea4a8f19 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a plan of termination that meets the criteria in paragraph [420-10-25-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-4) includes both involuntary termination benefits and termination benefits offered for a short period of time in exchange for employees' voluntary termination of service, a liability for the involuntary termination benefits shall be recognized in accordance with this Subtopic. A liability for the incremental voluntary termination benefits (the excess of the voluntary termination benefit amount over the involuntary termination benefit amount) shall be recognized in accordance with paragraphs [712-10-25-1 through 25-3](https://asc.understandingaccounting.org/asc/712/10/#712-10-25-1) . For an illustration of this situation, see Example 3 (paragraph [420-10-55-9](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-9)). #### Contract Termination Costs ##### [420-10-25-11](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:0a16ae255174c77888d563ce9242c43de409133d5156284c30d8f9903938b765 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Subtopic, costs to terminate a contract (excluding [leases](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") within the scope of Topic 842) are either of the following: 1. a  Costs to terminate the contract before the end of its term 2. b  Costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity. ##### [420-10-25-12](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:3d1e2cdf0d5e8d37046a70fc3484ef5578f3c56ccb161d4f5a49a09c4b5207dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability for costs to terminate a contract before the end of its term shall be recognized when the entity terminates the contract in accordance with the contract terms (for example, when the entity gives written notice to the counterparty within the notification period specified by the contract or has otherwise negotiated a termination with the counterparty). ##### [420-10-25-13](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:182b8a33a77137317f7f2fe864936156c44d2a04f00342dcd8a391ab69784370 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity shall be recognized at the [cease-use date](https://asc.understandingaccounting.org/glossary/c/#cease-use-date "The date the entity ceases using the right conveyed by the contract, for example, to receive future goods or services."). #### Other Associated Costs ##### [420-10-25-14](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:1c7b8f13cd9df14d261daaa44e563d4c6e7707ee0ee3d084a7f3b461f869a9b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other costs associated with an exit or disposal activity include, but are not limited to, costs to consolidate or close facilities and relocate employees. ##### [420-10-25-15](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-15) Pending content: no Source downloaded (UTC): 2026-09-10T00:22:44.994Z to 2026-09-10T00:22:44.994Z Record version: sha256:d3a498b8a0c43566fc0e60fa352624711079d6c95a9a58e496c1aa2432b76e1d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The liability shall not be recognized before it is incurred, even if the costs are incremental to other operating costs and will be incurred as a direct result of a plan. A liability for other costs associated with an exit or disposal activity shall be recognized in the period in which the liability is incurred (generally, when goods or services associated with the activity are received).