Case 13-06 Natural Irony: Accounting Considerations When There Is a Natural Disaster

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WetWind Alternatives Corp (WWA) produces electricity through alternative methods such as wave and wind turbines and owns two subsidiaries, Kahuku Wind Inc. and North Shore Wave Electric Inc. (NS Wave), on the north shore of Oahu, HI to utilize the resources of this geographic location in their business venture. Deloitte’s Case 13-06 – “Natural Irony: Accounting Considerations When There Is a Natural Disaster”, discusses a hypothetical scenario where a volcanic eruption causes massive damage to the subsidiaries’ operational assets and poses the question of how to properly record these occurrences in financial statements. The main issue is that Kahuku Wind and NW Wave’s fiscal year end is October 31st so that WWA can have complete…show more content…
These policies mostly need to involve open communication between the subsidiaries and the parent and can involve something as simple as weekly status reports which would include notification of significant changes or events, if any. If this hypothetical natural disaster actually did occur, there are certain accounting considerations WWA would have to assess in determining the edits needed on their consolidated financial reports to disclose relevant information, or else they would be material misstated. This disaster would be a subsequent event, according to ASC 855-10-25-1, where the event happens after the balance sheet date of the subsidiaries, but before the financials are issued in the consolidated statements. WWA would classify this as recognized subsequent event because it occurs before its own balance sheet date. The financial impact will be presented in both the balance sheet and income statement after the damaged assets have been tested for recoverability because in this case there was a significant adverse change in the asset’s physical condition (ASC 360-10-35-21). Since NS Wave’s 9 power generators were destroyed and Kahuku Wind’s 12 wind turbines have irreparable damage, these assets are deemed non recoverable and must be written off as a loss (ASC 360-10-35-17). Insurance proceeds may offset this loss and whether the assets are insured should be disclosed because a gain from this

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