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Rough Waters Ahead

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1. How should Smooth Sailings’ management perform the recoverability test for the cruise ship as of December 31,2010? In addressing this question, consider: * What assets and liabilities should be included in the “asset group” as defined by ASC 360-10 for purposes of performing the recoverability test?
360-10-35-21 According to ASC 360-10-35-23 a 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.
According to ASC 360-10-20 Glossary: An asset group is the unit of accounting for a long-lived asset or assets to be hold and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Need explain non-recourse
So “asset group” should include: cruise ship, net book value of the cruise ship 4.6 million, net working capital directly attributed to the cruise ship 0.1 million. Total value of asset group: 4.7 million. * What should the multiple operating scenarios impact the recoverability test?
360-10-35-17
According to ASC 360-10-35-29 Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall include only the future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset (asset group). Those estimates shall exclude interest charges that will be recognized as an expense when incurred.
According to ASC 360-10-35-30 Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s own assumptions about its use of the asset (asset group) and…...

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