termination claim

This Subtopic requires federal government contractors to make incremental disclosures about the risks and uncertainties arising from the government's unilateral right to terminate contracts for its convenience. The effect of a termination is reflected in the period the termination occurs (or earlier if it is a subsequent event attributable to balance-sheet-date conditions), with only the reasonably estimable portions of a termination claim recognized and the remainder disclosed. Controversial or undeterminable claim elements are stated at amounts estimated to be collectible or excluded and disclosed.

This Subtopic gives government contractors narrow guidance on inventory affected by contracts terminated for the convenience of the government, plus disclosure of the accounting policy for costs included in contract inventory. If inventory whose costs are in the termination claim is later reacquired by the contractor, the reacquisition value is recorded as a purchase; in "no-cost settlements," where the contractor waives its claim, no sale transaction arises and retained inventory is accounted for under ordinary inventory methods rather than as a purchase.

ASC 405-912 tells federal government contractors how to present and disclose liabilities arising from terminated contracts and from progress/advance payments. Termination loans (even if government-guaranteed) are third-party liabilities shown as current liabilities with cross-reference to the related claim; unliquidated advance payments on a terminated contract are deducted from the claim receivable. Progress and advance payments accounted for as borrowings under 912-310-25-7 are reported as cash received from financing activities.