Rough Waters Ahead
Applying an example in IAS 36 Appendix A-A7, the future cash flow should be as below: Estimated Future Cash Inflows (Scenario 1) | Option | ProbabilityOf Occurring | 2011 | 2012 | 2013 | 2014 | 2015 | Total | A | 10% | 1.00M | 1.00M | 0.70M | 0.70M | 0.70M | 4.00M | B | 20% | 0.60M | 0.80M | 1.10M | 1.60M | 1.90M | 6.00M | C | 70% | 1.00M | 0.00M | 0.00M | 0.00M | 0.00M | 1.00M | Estimated Cash Inflows | 100% | 0.92M | 0.26M | 0.29M | 0.39M | 0.45M | 2.31M | Present Value of Cash Inflows(Discount rate 7%) | | 0.86M | 0.23M | 0.24M | 0.30M | 0.32M | 1.94M |
From the form, it is not hard to see the multiple operating scenarios affect the amount of cash inflows based on the probability of occurring. The cruise ship’s fair value less costs disposal is $3.0 million and the value of use is 1.94million so the recoverable amount is $3.0million because fair value less costs of disposal is greater than the value of use.
4. Impairment Loss should be recorded on Dec 31, 2010
IAS 36-59 claims if, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. The recoverable amount is $3.0 million and the carrying amount of the asset is $ 4.7 million (including $ 0.1 million of net