Issue Analysis Paper

Overview:

Ford Motors is currently facing unfavorable business conditions and in order to survive, it is remodeling itself as a smaller, more flexible and competitive firm. For this the company is slashing 10,000 jobs and closing 2 plants. The company is at present not making a profit and it is hoped that, by taking these actions, the company will once again become profitable by 2009. It is hoping that there will be huge cost savings after layoffs and plant closings. For instance, by offering buyout packages, it aims to reduce $5 billion in operating costs. The company is also looking to make its production more strategic by concentrating on core products and expected best setters.

The Issue: Are the preceding events classified as Discontinued Operations, as of now?

Record an Asset as a discontinued operation if: a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the enterprise; b) the enterprise will not have any significant continuing involvement in the component after the disposal transaction. CICA 3475.27

Recognize this is a Discontinued Operation, as of now, and proceed accordingly. Do not Recognize this is a Discontinued Operation, and classify it as and when events transpire.

„X The shut down costs associated with the plants should be treated as occurring from discontinued operations. These costs will include legal, accounting, financial services, and others. These are direct costs of the decision and have to be expensed to give a better picture of the companyÐŽ¦s financial situation

„X Job cutting costs such as buyout packages should all be treated as discontinued operations expense.

„X All plants being shutdown should be recognized as discontinued operations. They do not reflect the working of the ÐŽ§Continuing OperationsЎЁ therefore; they should not be bunched with them.

„X Spare parts, and other inventory, which will be left useless as a result of the plant shutdowns, should be expensed under discontinued operations expense.

„X Expected shut down date for the plant is 2008. Up till then, they will generate their own cash flows and therefore they should be recorded as continuing operations. They