# ASC 420-10-55: Exit or Disposal Cost Obligations — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/420/10/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:2c8586695b9c715d5f9adcc8d77c025e7e8e3ce54850b14d6bd64b773946336b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 420-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/420/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [420-10-55-1](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:88d71d1c891416f2dc9f72ec1e959df1b6cf3c30abaa70b11131567c4845970a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Additional termination benefits may be included within the scope of this Subtopic as follows.In order to be considered an enhancement to an ongoing benefit arrangement and, therefore, subject to the provisions of the Topics referred to in paragraphs [420-10-05-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-05-4) and [420-10-15-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-15-6), the additional termination benefits must represent a revision to the ongoing arrangement that is not limited to a specified termination event or a specified future period. Absent evidence to the contrary, an ongoing benefit arrangement is presumed to exist if an entity has a past practice of providing similar termination benefits. Otherwise, the additional termination benefits should be considered [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.") and accounted for under the provisions of this Topic. See Example 5 (paragraph [420-10-55-16](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-16)) for an illustration of such a determination. #### Illustrations ##### [420-10-55-2](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:759ddf950b5bf51722613d97799ff107aadf6ebc4483672f99f03638f2cd242c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example assumes that an entity has a one-time benefit arrangement established by 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) and has been communicated to employees. ##### [420-10-55-3](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:e94e0923bc12a0d84c448bc071efcd3a38065f0b8b3a319a1619fd8e30c38a83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity plans to cease operations in a particular location and determines that it no longer needs the 100 employees that currently work in that location. The entity notifies the employees that they will be terminated in 90 days. Each employee will receive as a termination benefit a cash payment of $6,000, which will be paid at the date an employee ceases rendering service during the 90-day period. In accordance with paragraph [420-10-25-8](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-8), a liability would be recognized at 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.") and, in accordance with paragraph [420-10-30-5](https://asc.understandingaccounting.org/asc/420/10/#420-10-30-5), measured at its fair value. In this case, because of the short discount period, $600,000 may not be materially different from the fair value of the liability at the communication date. ##### [420-10-55-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:330b615772de123caad2d7bbe1d1ecc1ca6a30fc8a01c82822a61a023f4a9576 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example assumes that an entity has a one-time benefit arrangement established by 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) and has been communicated to employees. ##### [420-10-55-5](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:4f285580f72b6055e4c5d9006b64a79e63d4d462df06de83128072ee0b47d49b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity plans to shut down a manufacturing facility in 16 months and, at that time, terminate all of the remaining employees at the facility. To induce employees to stay until the facility is shut down, the entity establishes a one-time stay bonus arrangement. Each employee that stays and renders service for the full 16-month period will receive as a termination benefit a cash payment of $10,000, which will be paid 6 months after the termination date. An employee that leaves voluntarily before the facility is shut down will not be entitled to receive any portion of the termination benefit. In accordance with paragraph [420-10-25-9](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-9), a liability for the termination benefits would be measured initially at the communication date and, in accordance with paragraph [420-10-30-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-30-6), based on the fair value of the liability as of the termination date and recognized ratably over the future service period. The fair value of the liability as of the termination date would be adjusted cumulatively for changes resulting from revisions to estimated cash flows over the future service period, measured using the credit-adjusted risk-free rate that was used to measure the liability initially (as illustrated in this Example). ##### [420-10-55-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:a693077e6213ae56a720da0c9f52c85ca3a1b53822385d73e5865649eb701e31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value of the liability as of the termination date is $962,240, estimated at the communication date using an expected present value technique. The expected cash flows of $1 million (to be paid 6 months after the termination date), which consider the likelihood that some employees will leave voluntarily before the facility is shut down, are discounted for 6 months at the credit-adjusted risk-free rate of 8 percent. In this case, a risk premium is not considered in the present value measurement. Because the amounts of the cash flows will be fixed and certain as of the termination date, marketplace participants would not demand a risk premium. ##### [420-10-55-7](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:131dae97510e24eb18ff3224de86c0fe5c0446ebe91d9e2a558286dddd796220 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, a liability of $60,140 would be recognized in each month during the future service period (16 months). ##### [420-10-55-8](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:9d1c81629352e14ee1d0f0d907e70ba70640669d7f5a9e549de23ffcca4b454c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After eight months, more employees than originally estimated leave voluntarily. The entity adjusts the fair value of the liability as of the termination date to $769,792 to reflect the revised expected cash flows of $800,000 (to be paid 6 months after the termination date), discounted for 6 months at the credit-adjusted risk-free rate that was used to measure the liability initially (8 percent). Based on that revised estimate, a liability (expense) of $48,112 would have been recognized in each month during the future service period. Thus, the liability recognized to date of $481,120 ($60,140 × 8) would be reduced to $384,896 ($48,112 × 8) to reflect the cumulative effect of that change (of $96,224). A liability of $48,112 would be recognized in each month during the remaining future service period (8 months). Accretion expense would be recognized after the termination date in accordance with the guidance beginning in paragraph [420-10-35-1](https://asc.understandingaccounting.org/asc/420/10/#420-10-35-1) and in paragraph [420-10-45-5](https://asc.understandingaccounting.org/asc/420/10/#420-10-45-5). ##### [420-10-55-9](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:9c4336015aacb34bd4c6057a72a4b7cd89e4251783d2e063760d84b368bb8ee6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example assumes that an entity has a one-time benefit arrangement established by a plan of termination that meets the criteria of paragraph [420-10-25-4](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-4) and has been communicated to employees. ##### [420-10-55-10](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:da24adadc546fcfda213882cd44affcba081aa256d748fac4061a6a09c62b6ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity initiates changes to streamline operations in a particular location and determines that, as a result, it no longer needs 100 of the employees that currently work in that location. The plan of termination provides for both voluntary and involuntary termination benefits (in the form of cash payments). Specifically, the entity offers each employee (up to 100 employees) that voluntarily terminates within 30 days a voluntary termination benefit of $10,000 to be paid at the separation date. Each employee that is involuntarily terminated thereafter (to reach the target of 100) will receive an involuntary termination benefit of $6,000 to be paid at the termination date. The entity expects all 100 employees to leave (voluntarily or involuntarily) within the minimum retention period. In accordance with paragraphs [420-10-25-6 through 25-8](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-6) , a liability for the involuntary termination benefit (of $6,000 per employee) would be recognized at the communication date and, in accordance with paragraphs [420-10-30-4 through 30-6](https://asc.understandingaccounting.org/asc/420/10/#420-10-30-4) , measured at its fair value. In this case, because of the short discount period, $600,000 may not be materially different from the fair value of the liability at the communication date. As noted in paragraph [420-10-25-10](https://asc.understandingaccounting.org/asc/420/10/#420-10-25-10), a liability for the incremental voluntary termination benefit (of $4,000 per employee) would be recognized in accordance with paragraph [712-10-25-1 through 25-3](https://asc.understandingaccounting.org/asc/712/10/#712-10-25-1) (that is, when employees accept the offer). ##### [420-10-55-11](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:0a2280ba36e3cdaf4cf3b17e6e0bfabfbaf6f44d134b51722ca0720823f85c13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [420-10-55-12](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:8daa4b3b9da1ef20c1676c95f5439db37c5970dadc4d3a48e4aafa6905c3aead Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [420-10-55-13](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:4fd83ca4667737136e8e3b09a8c31e8c1853b1630dd33e974a54fdbe3194ccef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [420-10-55-14](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:c4bacfbf08d2d841e9167dfdb5fe2904948310e6561322200edfafd10dbdbc67 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [420-10-55-15](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:9f8651102665abc20a5fc90d3dcf78db25fdbf8227545d7c8efe6e5adb82f669 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [420-10-55-16](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:6338eeac286d9561b1c0ff61914df816492427f339e538b0c624bb8323868e81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example is in the context of a typical involuntary termination benefit plan subject to the provisions of Topic 712. ##### [420-10-55-17](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:dff0a89fb3461932fa6753d3d5feb72649b9b216c1492f81f3c1383168aefe92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity has a written involuntary termination benefit plan that is distributed to all of its employees at date of hire. The plan provides that upon an involuntary termination of employment for other than cause, each terminated employee will receive one week of severance pay for every year of service. In the current year, the entity initiates a reduction in force. In connection with that reduction in force, management decides to amend the ongoing benefit arrangement to provide an additional two weeks of severance pay for every year of service. That additional benefit applies to all employees affected by this reduction in force and all future involuntary terminations. ##### [420-10-55-18](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:e3b2dbb8a2df2ba8001954b8b7cd85f16af31f456d877c8a84b54a37a16f4d25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on an evaluation of the circumstances, the additional termination benefit is considered an enhancement to the ongoing termination benefit plan because it represents a revision to the ongoing plan that applies to all future involuntary terminations. That is, the amendment to the ongoing benefit arrangement is not limited to a specified termination event or specified future period. Therefore, the additional termination benefit should be accounted for in accordance with Topic 712, which requires that a liability for certain termination benefits provided under an ongoing benefit arrangement be recognized when the likelihood of future settlement is probable, as that term is used in Topic 450. Thus, termination benefits that, based on the benefit formula, are attributable to past service may be recognized initially at a plan date if at that date it becomes probable that employees will be terminated and receive termination benefits under the benefit arrangement (the benefit arrangement having been communicated to employees previously, for example, at the date of hire). ##### [420-10-55-19](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T00:23:04.395Z to 2026-09-10T00:23:04.395Z Record version: sha256:5c62c9a49e17daa929211782474655b4be1b819666048c5e9ef745c86b52231e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If this Example were changed to indicate that the additional termination benefits only applied to the employees affected by that reduction in force and similar benefits had not been provided for a past reduction in force, those additional benefits would not be considered an enhancement to the ongoing termination benefit plan and would, therefore, be accounted for under the guidance in this Subtopic. See paragraph [420-10-55-1](https://asc.understandingaccounting.org/asc/420/10/#420-10-55-1) for additional information regarding making this determination.