Accounting Rough Waters Essay

2644 Words Aug 14th, 2014 11 Pages
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,
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ASC 360-10-35-17 describes the two-step approach to assessing impairment and states that:

An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group)... An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value

Student discussion/analysis

In performing the recoverability test for the ship in accordance with ASC 360-10, the impairment assessment should include the following considerations:

Consideration 1 — Determining the Asset Group

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

ASC 360-10-35-23 defines an asset group, in part, as follows:

For purposes of recognition and measurement of an impairment loss, long-lived asset or assets shall be grouped 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

Consideration 2 — Impact of Multiple Scenarios to the Undiscounted

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