Rough Water Case

“A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.”

Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”

As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than

Another consideration is the citation ASC 350-20-35-4, which is related with the first step to accomplish goodwill impairment test. The memorandum stated only the (IAS 36.105) impairment losses.

Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.

Goodwill Impairment is the Goodwill that has become or is considered to be of lower value than at the time or purchase. From an accounting perspective, when the carrying value of the goodwill exceeds the fair value, then it is considered to be impaired. Negative publicity about a firm can create goodwill impairment, as can the reduction of brand-name recognition. Since the Financial Accounting Standards Board (FASB) first introduced its standards update on testing for goodwill impairment (ASU 2011-08), entities with goodwill on their balance sheet have had the option when testing goodwill for impairment to first assess qualitative factors as a basis for determining whether it is necessary to perform the traditional two-step approach described in ASC Topic 350. The optional qualitative assessment is commonly referred to as “step zero.”

ASC 320-10-35-35: “In periods after the recognition of an other-than-temporary impairment loss for debt securities, an entity shall account for the other-than-temporarily impaired debt security as if the debt security had

Because $2.3 million is less than the Carrying Value of the asset group of $4.7 mm, ($2.3 million < $4.7 million), The Impairment loss will be Fair Value of Asset less carrying amount of asset group.

According to Section 360-10-35-21, examples of events that would cause an asset to be tested for impairment include a significant decrease in the market price of a long-lived asset, or a asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, or asset group, and a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.

* There is cash flow loss that might causes continuing losses associated with the use of the asset

If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value.

First, analyzing the Income Statement for Marion Boats, Inc. led Darby Consulting to a gross profit of $27,400 after considering the company’s trade-in allowances, cash, account receivables, loss on sales, and cost of goods sold. The loss on sales is not meant to be a red flag, it accounts for the loss on the resale of trade-in boats which is accounted for in the sales section of the income statement because it is a cost of doing business for the company. The firm considered the accounting principle six when preparing this document because it is important to recognize revenue as it is earned rather than when it is received (Young, 2013). This would take into account the fact that sales, both used and new, are accounted for when they are delivered to customers. The Darby Consulting then subtracted the five-month salary received by Fred, the legal expenses, Fred’s sales commission, and the loan interest to determine Marion Boats, Inc.’s $13,920 profit. The Income Statement was created using the seventh generally accepted accounting principles meaning that Darby Consulting was able to determine the expenses incurred by Marion Boats during a revenue period (Young, 2013). The Income Statement prepared by Darby Consulting looked similar to that of Mr. Hurley except that Darby Consulting broke down the sales section in an effort to better represent where revenue was received from.

Ida should measure the impairment loss as the amount that the carrying value of the building exceeds its fair value (ASC 360-10-35-17). Ida’s impairment loss for the commercial building is $600,000 (the carrying amount of the building- $4,500,000 minus its fair market value- 3,900,000).

The Waterview is a snack bar located on a full season resort in the Muskoka District. The resort had made multiple changes of ownership in recent years and the present owners are attempting to restore the resorts highly regarded reputation. The resort had suffered from the deterioration of quality and service that led to the loss of loyal customers due to staff not meeting the high expectations of their patrons. Currently there is a poor working relationship between Rebecca Boddington, the newly promoted assistant operations manager and Michael Welland, a long time summer employee, who had been promised a supervisory position. Additionally, Boddingtons manager Mark Humphries the corporate operations and sales manager spends very