Case (Project Sell Soon Inc)
Sell Soon Inc.
This case is about a company called Sell Soon Inc. this is a manufacturing company that operates two widget manufacturing facilities in the United States. One is located in New Orleans Louisiana and the other facility is located in Houston Texas. The company is going through restructuring and one part of the restructuring plan is the disposition of the Houston division through consolidation. When the restructuring is complete all of the Sell Soon Ink’s manufacturing will be done from the New Orleans facility. The Houston facility currently has a book value of $ 20 million and it has a fair market value of $ 25 million. Sell Soon Inc expects to incur two million dollars to dispose the Houston facility and combine the manufacturing work into one location. The two million dollar cost is broken down in two parts that is one million dollar will be spent before the disposal and the combination of the two facilities takes place and the rest is allocated as selling cost of the Houston facility. The selling costs will be incurred only if the sale of the Houston manufacturing division goes through. Therefore, the accounting issue in this case is that how should Sell Soon Inc account for the one million dollars it will be spending before disposing the Houston facility and given the company expects that there will be a gain on this disposal.
Sell Soon Inc. should account for the one million dollar cost of disposal by capitalizing the cost. According to EITF issue No. 90-8 “Costs should be capitalized if the costs are incurred in preparing for sale that property currently held for sale.” So, in this case we are told in the case that “held for sale” criteria in paragraph 30 of FASB statement No. 144 are met. In order to dispose the Houston facility Sell Soon Inc. has to incur different costs to get the facility ready for sale. More over, Sell Soon Inc. has met the following criteria that are outlined in FASB 144....
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