Cruise Ship Impairment
1. How should Smooth Sailings’ mana gement perform the recoverability test for the cruise ship as of December 31, 2010?
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
2. What assets and liabilities should be included in the “asset group” as defined by ASC 360-
10 for purposes of performing the recoverability test?
Assets to include in the recoverability test are: the cruise ship as well as the net working capital of $0.1 million. Excluded from the recoverability test is the nonrecourse debt of $4.0 million.
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
3. How should the multiple operating scenarios impact the recoverability test?
FASB ASC 360-10-35-30 states Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s own assumptions about its use of the asset (asset group) and shall consider all available evidence. The assumptions used in developing those estimates shall be reasonable in relation to the assumptions used in developing other information used by the entity for comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information communicated to others. However, if alternative courses of action to recover the carrying amount of a long-lived asset (asset group) are under consideration or if a range is estimated for the amount of possible future cash flows associated with the likely course of action, the likelihood of those possible outcomes shall be considered. A probability-weighted approach may be useful in considering the likelihood of those possible outcomes.
4. What impact should the
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
2. What assets and liabilities should be included in the “asset group” as defined by ASC 360-
10 for purposes of performing the recoverability test?
Assets to include in the recoverability test are: the cruise ship as well as the net working capital of $0.1 million. Excluded from the recoverability test is the nonrecourse debt of $4.0 million.
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
3. How should the multiple operating scenarios impact the recoverability test?
FASB ASC 360-10-35-30 states Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s own assumptions about its use of the asset (asset group) and shall consider all available evidence. The assumptions used in developing those estimates shall be reasonable in relation to the assumptions used in developing other information used by the entity for comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information communicated to others. However, if alternative courses of action to recover the carrying amount of a long-lived asset (asset group) are under consideration or if a range is estimated for the amount of possible future cash flows associated with the likely course of action, the likelihood of those possible outcomes shall be considered. A probability-weighted approach may be useful in considering the likelihood of those possible outcomes.
4. What impact should the