Asset Impairment
Which event made the need for an asset impairment review at Crusin Lines?
Fire and power loss on Dreamer ship
Who told Kayla to minimize or avoid the impairment loss?
Matt Marzo, CEO of Eastern Region
Who evaluates Kaylas performance and influences her wages?
Tony Falcon with the input from Mr.Marzo
What discount method was used to value future net cash flows?
discount rate adjustment
What professional certifications does Kayla hold?
CPA & CMA
What is the cruise ship Dreamer’s book value at March 31, 2019?
227 million
Why did the executives want to avoid recording an impairment loss?
reduced or eliminated their performance bonuses
True or False: Mr. Marzo’s bonus would be unaffected by impairment loss of $100million?
False ($100M impairment loss would leave him with no bonus)
Under GAAP when should an impairment loss be recognized?
When carrying value exceeds sum of undiscounted future cash flows
Who reviews and can adjust the eastern region’s financial statements?
Tony Falcone, CFO
What approach did Crusin Lines use to estimate the Dreamer’s market value?
market based approach
What professional framework could be used to navigate Kayla’s ethical concerns?
AICPA Ethical Standards
How can executives’ bonuses influence financial reporting decisions such as impairment
pressure staff to maintain high profits and avoid recognizing losses to protect bonuses based on performance
True or False: IFRS requires one step to determine whether an asset is impaired
True - IFRS is 1 step vs. GAAP 2 step approach
What internal motivation might influence Kayla’s decision aside from ethics?
Her raise depends on corporate profits and evaluations
What fair value hierarchy level is used using the market approach for this case?
Level 3
Name one of the professional codes of conduct mentioned as a source of ethical guidance
AICPA, CIMA, IMA Statement of Ethical Professional Practice
What percentage of Mr. Marzo’s bonus was tied to NIBT?
70%
Which standard under IFRS addresses impairment of long-lived assets?
IAS 36
What other cash flow estimates did Kayla consider besides $240 million?
Midflow, conservative, $225M, $200M
Which professional accounting standard under GAAP deals with asset impairment?
ASC 360
What ethical concern arises from using optimistic cash flow projections?
Biased financial records due to pressure, and compromising integrity
Name a KPI (Key Performance Indicator) that affects managements bonus?
Customer satisfaction index, employee retention ratio, on-board revenue per customer, and net income before taxes
Which GAAP standard provides guidance on fair value measurements?
ASC 820
Kayla’s former employer type before joining Crusin Lines
External auditor