We have recently gone through a restructuring that resulted in a number of write-offs of assets and taking charges for the estimated cost of transition of certain employees. Are these run through the P&L and dropped into a reserve on the Balance Sheet and then taken off the Balance Sheet as the expenses occur? And once done with the restructuring activity what do we do if we run over or under the restructuring reserve? Any help is appreciated.
Business Restructuring Charges
Answers
You would use the P&L for period charges and the BS (pardon) for reserves. So the write-offs of assets would hit the P&L and reflect a write-down of asset values on your BS in the period in which those write-downs occur. The "reserves" you are taking for future costs related to the restructuring would be run through the P&L as restructuring expense and would be hung up as a liability as soon as you could practically determine the amounts involved and have a sense of certainty about the obligations. You should check with your
You have correctly described the initial process of determining the amount of the required restructuring reserve and associated expense. The reserve should be evaluated each year, at least, until complete and adjustments made to increase or decrease as required with the contra to P&L. The result when the restructuring activity is complete is to reflect in P&L the costs, comprised of the initial estimate and the sum of the subsequent revisions.
Dan-You can only put certain costs on the balance sheet. For example employee costs are put on the balance sheet when the employee is notified (remember to include outplacement, employee benefits (FICA, healthcare, etc...). These represent costs that will be paid in the future. If you notify the employee, but don't severe the employee when notified, you have to prorate the "charge" to the P&L over their remaining service period. The only other costs that you can put on the balance sheet are contractual type costs. These would include rents, leases and other similar costs. For other items where there is no contract of stated payments, you would take these costs as a "period cost" to restructuring. For example, you have to tear down a building, so you pay a demolition company and as you pay them, restructuring expense is debited. If you need any help on this, send me a message.
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FP&A