п»їRe: Impairment Screening
Were writing to you personally regarding the inquiry we received over the possible impairment of your cruise ship. The response was formulated applying our considerable knowledge of the U. H. Generally Approved Accounting Rules and talking about ASC 360-10 over the tests of disability. After preforming recoverability assessments, we have figured your cruise ship is damaged, and a great impairment lack of $1. 6th million should be recorded on 12 , 31, 2010. In the second scenario, the asset is definitely recoverable since the expected long term cash moves are higher than the carrying value; therefore , the cruise liner is certainly not impaired. The others of this idiota will identify how we calculated the disability on your cruise ship. In order to test for disability of an property, we must 1st determine if there is certainly an indicator that may reveal that the carrying amount from the asset is probably not recoverable. In respect to ASC 360-10-35-21, a great indicator is present when there is certainly an adverse change in the level or way a long-lived asset is employed or there is certainly an adverse change in the business environment that could affect the value of the long-lived property. Based on the data you presented us about the possible difference in cruise ship path and financial state due to pirates, we have concluded that there is a great impairment indication present. Due to the nature with the tourism industry, we identified that the presence of cutthroat buccaneers is harmful and unappealing to tourists and triggered a decrease in cash flows. Operating in new areas will also cause a decrease in funds flows due to costs of relocating and lack of knowledge in the new area. Following identifying the existence of an indication of disability, we must test out the recoverability of the asset group. The cruise ship is the primary property in the advantage group, consisting of your $0. 1 , 000, 000 of seed money. Your seed money is included in the asset group for this two causes: it does not include cash goes that are independent of the cruise ship as the working capital is key to working the luxury cruise ship's businesses, and it is independent of the cash moves of different assets and liabilities. The nonrecourse debt was not within the asset group because the personal debt obligation does not have to be repaid using the cash flows with the cruise ship. According to ASC 360-10-35-30, we computed the estimated un-discounted future cash moves based on the assumptions with the asset group's profitability and compared this to the advantage group's holding value. Due to three likely scenarios, we used a probability weighted-average approach for our calculations. To perform these calculations, all of us added the cash flow for every single option for the years 2011-2015. This year, we included $3 million for the estimated fair value in the ship. These types of calculations are displayed in Table 1 . To calculate the property group's holding value we added $4. 6 mil of ship's net book value for the $0. one particular million of net seed money, which resulted in a net carrying worth of $4. 7 , 000, 000. After carrying out the calculations, we figured the advantage group was not recoverable because the estimated future cash flows of $4. 6 million were significantly less that the net carrying benefit of $4. 7 million.
Approximated Future Money Flows (In Millions)
Continue to run in current area
Operate in new area
Operate for 2011 and go ahead and foreclose
To calculate the asset group's carrying value, we added $4. 6th million with the ship's net book value to the $0. 1 , 000, 000 of net working capital, which resulted in a net having value of $4. 7 million. Following performing the calculations, all of us concluded that the asset group was not recoverable because the estimated future cash...