Preview

Rough Waters Ahead

Satisfactory Essays
Open Document
Open Document
602 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Rough Waters Ahead
Becca Stone
Research in Financial Reporting
10-22-12

Case 12-9: Rough Waters Ahead

1. How should Smooth Sailings’ management perform the recoverability test for the cruise ship as of December 31, 2010? a. What assets and liabilities should be included in the “asset group” as defined by ASC 360-10 for purpose of performing the recoverability test? i. FASB ASC paragraph 360-10-35-23 states that for measuring an impairment loss, long-lived assets should be group with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. ii. As a result, I’ve decided to include the cruise ship in the asset group, because it’s an asset that we’re performing the recoverability test for. I also decided to include net working capital of $0.1 million, because net working capital is often included in asset groups. However, I did not include the nonrecourse debt of $4.0 million because its cash flows are too debt on the asset itself. Furthermore, FASB ASC paragraph 360-10-35-27 states that long-term debt should be adjusted before testing the asset for recoverability. Total = $4.7 mm

b. How should the multiple operating scenarios impact the recoverability test? iii. FASB ASC 360-10-35-30 states that when multiple courses of action are considered to recover the carrying amount of a long-lived asset (asset group), then the likelihood of each of these situations should be considered, and a probability-weighted approach should be useful. It is important to consider the different scenarios that an entity would choose because it can impact estimates of future cash flows (FASB ASC Paragraph 360-10-55-27).

c. What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test? iv. It greatly reduces the total undiscounted cash flows that the company

You May Also Find These Documents Helpful

  • Good Essays

    ACTG 351 Case 2

    • 734 Words
    • 2 Pages

    The other major part of Eagle’s business that we must investigate for Eagle’s future is the impairment of cash generating unit (CGU) in Serbia to do this we must look at the goodwill and determine if it has been impaired under IFRS and U.S. GAAP. To do so we must compare the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit…

    • 734 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    According to ASC 360-10-20, “an impairment is the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value”. In order to determine if the impairment exist in the case, we will have to compare the carrying amount with the fair value of the assets. In regards to the municipal bounds, its amortized cost, $8,500,000 exceeds its fair value, $7,500,000. And corporate bonds’ amortized cost, $8,300,000 also exceeds its fair value, $6,800,000. Therefore, the impairments have occurred.…

    • 398 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Ida's Impairment

    • 354 Words
    • 2 Pages

    1) (1) The U.S. GAAP section 360-10-35-21 states “A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable”. An example of an event like this is a significant decrease in the market price of a long-lived asset. As stated in the case, one of Ida’s competitors sold its extremely comparable commercial building for an amount significantly less than its asking price. Since these assets are very similar in comparison, this significantly less price for the competitor’s building is an example of a decrease in the market price of Ida’s commercial building. Therefore under the U.S. GAAP, Ida needs to test the U.S. commercial building for recoverability. (2) Under IAS 36.12, there are certain external factors that lead you to want to test for recovery such as a decline in market value. The sale of the building across the street is an example of one of those external factors. IAS 36.6 explains impairment and how to record impairment. Under IFRSs IAS 36.66, the recoverable amount of cash-generating units (CGUs) should be determined for the individual asset. Therefore, a recoverability test must be done.…

    • 354 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Rough Waters Memo

    • 1085 Words
    • 5 Pages

    “A long lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances:…

    • 1085 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Home Computer Case

    • 1517 Words
    • 7 Pages

    ASC 360-10-35-21 A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances:…

    • 1517 Words
    • 7 Pages
    Good Essays
  • Satisfactory Essays

    Which one of the following unsecured liabilities has the highest priority when an insolvent company is about to be liquidated?…

    • 673 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Rough Waters Ahead

    • 1926 Words
    • 7 Pages

    “If the undiscounted cash flows used in the test for recoverability are less than the long-lived asset’s (group’s) carrying amount, determine the fair value of the long-lived asset (group) and recognize an impairment loss if the carrying amount of the long-lived asset (group) exceeds its fair value.”…

    • 1926 Words
    • 7 Pages
    Satisfactory Essays
  • Satisfactory Essays

    2. For the year-end December 31, 2009, financial statements, should M adjust its liability? If so, what amount should be recorded; and should the amount of the adjustment be considered a 2009 event or a prior period adjustment?…

    • 337 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Acc550 Week 3

    • 1538 Words
    • 7 Pages

    E5-2 (Classification of Balance Sheet Accounts) Presented below are the captions of Nikos Company’s balance sheet.…

    • 1538 Words
    • 7 Pages
    Good Essays
  • Powerful Essays

    Case Solutions Deloitte

    • 5648 Words
    • 23 Pages

    On April 22, 2011, the FASB issued a Proposed Accounting Standards Update, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment. Under the proposed ASU, entities testing goodwill for impairment would have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. The proposal would not change how goodwill is calculated or assigned to reporting units, nor would it revise the requirement to test goodwill annually for impairment. In addition, the proposed guidance does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. These circumstances include: • Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets Industry and market considerations such as a deterioration in the environment in…

    • 5648 Words
    • 23 Pages
    Powerful Essays
  • Powerful Essays

    Builtrite - Auditing

    • 14427 Words
    • 58 Pages

    The following pages in this manual contain the solutions to the Biltrite Bicycles, Inc. audit practice case. The solutions are presented by module number. Answers to the narrative questions are presented first, followed by the completed working papers as solutions to those parts requiring audit working paper completion. The completed working papers are also included in the accompanying instructor's resource CD (IRCD) for those preferring to use the computer for viewing the completed audit working papers.…

    • 14427 Words
    • 58 Pages
    Powerful Essays
  • Good Essays

    Fly by Night

    • 572 Words
    • 3 Pages

    a. What evidence can you observe from analyzing the financial statements that might signal the cash flow problems experienced in mid-Year 14?…

    • 572 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    5) Should the company scrap its vessels after 15 years or after 25 years? What should be…

    • 264 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    Rough Waters Ahead

    • 592 Words
    • 3 Pages

    These events indicate that the carrying amount of the asset group may not be recoverable and, therefore, Smooth Sailing will test the asset group for recoverability and potential impairment in accordance with ASC 360-10 as of the end of the…

    • 592 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Accounting

    • 320 Words
    • 2 Pages

    B. After the impairment testing, goodwill associated with the Spanish operations impairs under IFRSs as of 12/31/2012. The impairment loss is $400,000. The new carrying value of the assets is $3.1 million. The new carrying value of the CGU is $1.8 million. Goodwill acquired in a business combination shall be allocated to each of the acquirer’s cash-generating units, or groups of cash generating…

    • 320 Words
    • 2 Pages
    Good Essays