Snowy Ridge Ski Resort Essay

1059 Words Dec 15th, 2011 5 Pages
Brittney Brooker
MEMORANDUM

To: Manager of Snowy Ridge Ski Resort
From: Kate Smith, Chief Accountant for Recreational Properties, Inc.
Date: October 27, 2010
RE: Fair Value Assessment

The subsequent valuations are consistent with the Statement of Financial Accounting Standards no. 157, defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
Snowy Ridge Ski Resort was acquired on June, 30th, 20X0 by Recreational Properties for $46,050,000. The fair value of identifiable assets and liabilities acquired are reported as $42,500,000, resulting in a computed goodwill of $4,000,000.It should be noted that goodwill
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It should be noted that an income approach could have also been used. Using a determined market discount rate of 6% and current year revenue of $3,028,000 at a four year discounted rate, the value would have been $12,040,548. Because adequate market information was available to make a more accurate estimate of the fair value, this is the estimate that was chosen.
The real estate division was estimated to have a fair value of $13,890,000. This was determined by totaling the number of lots expected to sell within the next four years and multiplying it by the price per lot of $180,000. After determining total lot sales, a 20% discount rate was applied as suggested by current market conditions. Given the unique nature of the real estate development, it is not believed that there are any comparable developments to find a market multiple.
After calculating the fair value of Snowy Ridge’s assets it was necessary to test for impairment. Impairment was tested by comparing the carrying value of each asset to its fair value (see table 2). The carrying value of marketable securities as of June 30th was $4,500,000. The current fair value of marketable securities was found to be 4,565,000, a positive difference of$ 65,000. Changes in marketable securities are reported even without impairment, thus an adjustment was made (see table 3). The carrying value of the mountain division as of June 30th was $12,360,000. The current fair

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