A Case Study of a Cruise Ship
Situation Overview
Discussion Points
Options
Recoverability Test: Accounting Guidance
Impairment Loss Calculation: Accounting Guidance
Additional Accounting Guidance
Recoverability Test and Calculation of Impairment Loss
Alternative Analysis
Summary and Recommendations
Appendix
Operates one cruise ship that is financed with nonrecourse debt.
Decline of 30% in cash flow due to presence of pirates.
Financial position as of December 31, 2010 ($ in millions)
•
•
•
•
•
Cruise Ship Estimated Fair Value
Net Book Value
Net Carrying Value Nonrecourse Debt
Net Working Capital (Directly Attributable)
Remaining Useful Life of Asset
$3.0
$4.6
$4.0
$0.1
5 years
Management is considering three options for the future
• Continue normal operations in current area
• Move operations to an area with no pirates
• Continue normal operations until year end and then allow the lender to foreclose
Perform Recoverability Test
• What assets and liabilities should be included in the asset group for purposes of performing the recoverability test?
• How should multiple operating scenarios impact the recoverability test?
• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test? Calculate impairment loss, if any, as of
December 31, 2010.
Management is considering three options.
The estimated cash flows for these options will be used to test for recoverability and calculate impairment loss (if any).
Continue normal operations in current area • Probability 10%
• Estimated Cash
Flows
• 2011 $1.0M
• 2012 $0.9M
• 2013 $0.7M
• 2014 $0.7M
• 2015 $0.7M
• Total $4.0M
Move operations to a new area with no pirates
• Probability 20%
• Estimated Cash
Flows
• 2011 $0.6M
• 2012 $0.8M
• 2013 $1.1M
• 2014 $1.6M
• 2015 $1.9M
• Total $6.0M
Continue normal operations until year end and then allow lender to foreclose • Probability 70%
• Estimated Cash
Flows
• 2011 $1.0M
• 2012 $0
• 2013 $0
• 2014
Situation Overview
Discussion Points
Options
Recoverability Test: Accounting Guidance
Impairment Loss Calculation: Accounting Guidance
Additional Accounting Guidance
Recoverability Test and Calculation of Impairment Loss
Alternative Analysis
Summary and Recommendations
Appendix
Operates one cruise ship that is financed with nonrecourse debt.
Decline of 30% in cash flow due to presence of pirates.
Financial position as of December 31, 2010 ($ in millions)
•
•
•
•
•
Cruise Ship Estimated Fair Value
Net Book Value
Net Carrying Value Nonrecourse Debt
Net Working Capital (Directly Attributable)
Remaining Useful Life of Asset
$3.0
$4.6
$4.0
$0.1
5 years
Management is considering three options for the future
• Continue normal operations in current area
• Move operations to an area with no pirates
• Continue normal operations until year end and then allow the lender to foreclose
Perform Recoverability Test
• What assets and liabilities should be included in the asset group for purposes of performing the recoverability test?
• How should multiple operating scenarios impact the recoverability test?
• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test? Calculate impairment loss, if any, as of
December 31, 2010.
Management is considering three options.
The estimated cash flows for these options will be used to test for recoverability and calculate impairment loss (if any).
Continue normal operations in current area • Probability 10%
• Estimated Cash
Flows
• 2011 $1.0M
• 2012 $0.9M
• 2013 $0.7M
• 2014 $0.7M
• 2015 $0.7M
• Total $4.0M
Move operations to a new area with no pirates
• Probability 20%
• Estimated Cash
Flows
• 2011 $0.6M
• 2012 $0.8M
• 2013 $1.1M
• 2014 $1.6M
• 2015 $1.9M
• Total $6.0M
Continue normal operations until year end and then allow lender to foreclose • Probability 70%
• Estimated Cash
Flows
• 2011 $1.0M
• 2012 $0
• 2013 $0
• 2014