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 Inks 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. If a long lived assetis to be disposed of by sale and the property
is classified as “held for sale” these criteria has to be met: management commits to plan to
sell the asset, management commits to plan to sell the asset, in this case management at
Sell Soon Inc is committed to sell this asset, the asset is available for immediate sale in its
