Pharma Co. (Pharma or the "Company") is a U.S. subsidiary of a UK entity that prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRS Standards for reporting to its parent. Pharma is restructuring a business line. As part of the restructuring, the Company is considering the relocation of an owned manufacturing operation (Plant A) from its present location to a new facility in a different geographic area. The relocation plan would include terminating certain employees.

Pharma has taken the following actions:

1. On December 27, 20X1, Pharma management communicated the main features of a one-time, nonvoluntary termination plan to its employees. The communication to the employees is included as Appendix A. Receipt of this one-time termination benefit is contingent on employees' continued service through the date Pharma ceases production and closes its Plant A facility. The Company estimates that the one-time termination benefit is $2.5 million. In addition, Pharma has a historical practice of providing two weeks' severance to individual employees upon nonvoluntary termination. The Company estimates that the cost of two weeks' severance for affected employees is $500,000. Finally, in accordance with the facility manager's employment agreement, the facility manager will receive an additional lump-sum benefit of $50,000 upon closure of the facility. Given the insignificant time between the date of the communication and the date the employees will be terminated, the Company is assuming that fair value of the costs listed above equals the estimated amounts.

2. Pharma will incur a relocation cost of $500,000 and staff training cost of $1.5 million. Further, the Company has entered into irrevocable contracts with certain other relevant parties to affect the restructuring plan over the ensuing 18 months.

3. On December 29, 20X1, Pharma issued a press release announcing its intentions to terminate a large IT service contract, incurring an early termination fee in addition to its normal IT service payments through the date of termination. The press release is included as Appendix B. Assume the terms of the IT service are such that Pharma accounts for the IT service as an expense as it is incurred. Further, the IT service agreement stipulates that written notice in the form of a letter or e-mail from Pharma directly to the IT service provider is required for early termination. Case 15-6c: Targeted for Termination Page 2 Copyright 20

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How should Pharma account for its restructuring costs in its IFRS financial statements as of and for the year ended December 31, 20X1?

How should Pharma account for its restructuring costs in its U.S. GAAP financial statements as of and for the year ended December 31, 20X1?

In answering these questions, students should provide an analysis of how Pharma should account for (1) employee benefits, (2) IT service termination costs, and (3) retraining and relocation costs.