Question:
The appearance of restructuring costs in corporate income statements increased significantly in the 1980s
and 1990s and continues to be relevant today.
Required:
1. What types of costs are included in restructuring costs?
2. When are restructuring costs recognized?
3. How would you classify restructuring costs in a multi-step income statement?
4. What factors would you consider in determining whether or not restructuring costs should be included
in an assessment of a company’s permanent earnings?
Answer:
Requirement 1
Restructuring costs include costs associated with shutdown or relocation of facilities or downsizing of
operations. Facility closings and related employee layoffs translate into costs incurred for severance pay
and relocation costs as well as asset write-downs or write-offs.
Requirement 2
Prior to 2003, restructuring costs were recognized (expensed) in the period the decision to restructure
was made, not in the period or periods in which the actual activities took place. Now, restructuring costs
are expensed in the period(s) incurred.
Requirement 3
Restructuring costs would be included as an operating expense in a multi-step income statement.
Requirement 4
An analyst must interpret restructuring charges in light of a company’s past history in this area.
Information in disclosure notes describing the restructuring and management plans related to the business
involved also can be helpful.
The appearance of restructuring costs in corporate income statements increased significantly in the 1980s
and 1990s and continues to be relevant today.
Required:
1. What types of costs are included in restructuring costs?
2. When are restructuring costs recognized?
3. How would you classify restructuring costs in a multi-step income statement?
4. What factors would you consider in determining whether or not restructuring costs should be included
in an assessment of a company’s permanent earnings?
Answer:
Requirement 1
Restructuring costs include costs associated with shutdown or relocation of facilities or downsizing of
operations. Facility closings and related employee layoffs translate into costs incurred for severance pay
and relocation costs as well as asset write-downs or write-offs.
Requirement 2
Prior to 2003, restructuring costs were recognized (expensed) in the period the decision to restructure
was made, not in the period or periods in which the actual activities took place. Now, restructuring costs
are expensed in the period(s) incurred.
Requirement 3
Restructuring costs would be included as an operating expense in a multi-step income statement.
Requirement 4
An analyst must interpret restructuring charges in light of a company’s past history in this area.
Information in disclosure notes describing the restructuring and management plans related to the business
involved also can be helpful.
