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Accounting Rough Waters

In: Business and Management

Submitted By mgowan89
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This case gives students an opportunity to determine the accounting for impairment of long-lived assets in accordance with ASC 360-10.

Applicable Professional Pronouncements

ASC 360-10, Property, Plant, and Equipment: Overall (ASC 360-10) ASC 360-10 provides guidance on accounting for property, plant, and equipment, and the related accumulated depreciation on those assets. This Subtopic also includes guidance on the impairment or disposal of long-lived assets. ASC 360-10 notes that long-lived tangible assets include land and land improvements, buildings, machinery and equipment, and furniture and fixtures. ASC 820, Fair Value Measurements and Disclosures (ASC 820) ASC 820, Fair Value Measurements and Disclosures, applies to U.S. GAAP that require or permit fair value measurements or disclosures and provides a single framework for measuring fair value and requires disclosures about fair value measurement. The Topic defines fair value on the basis of an "exit price" notion and uses a "fair value hierarchy," which results in a market-based — rather than entity-specific — measurement. IAS 36, Impairment of Assets (IAS 36) To ensure that assets are carried at no more than their recoverable amount, and to define how recoverable amount is determined.

Discussion 1 — Impairment Assessment for a Long-Lived Asset

How should Smooth Sailings’ management perform the recoverability test for the cruise ship as of December 31, 2010? In addressing this question, consider:

•What assets and liabilities should be included in the “asset group” as defined by ASC
360-10 for purposes of performing the recoverability test?

•How should the multiple operating scenarios impact the recoverability test?

•What impact should the potential foreclosure and extinguishment of debt have on the undiscounted cash flows used to perform the recoverability…...

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