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Reporting entities often cancel contractual arrangements as part of restructuring activities, triggering a need to evaluate the appropriate time to recognize the costs associated with any terminations.
In accordance with the guidance in ASC 420-10-25-11, if an entity terminates a contract prior to the end of its term, the liability for termination costs should be recognized and measured at fair value when the reporting entity terminates the contract in accordance with its terms (e.g., when the reporting entity gives written notice in accordance with the contract terms or has otherwise negotiated a termination with the counterparty). A liability for costs that will continue to be incurred under a noncancelable contract (i.e., required under the remaining term) without economic benefit to the entity should be recognized and measured at fair value when the reporting entity ceases using the rights conveyed by the contract.
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