Case 12-9 Rough Waters Ahead - IFRS 1. Cruise Ship belongs to the assets that apply to IAS 36 Impairment rule IAS 36-2 states the Impairment of Assets rule shall be applied in accounting for the impairment of all assets, other than: a) Inventories b) Assets arising from construction contracts c) Deferred tax assets d) Assets arising from employee benefits e) Financial assets that are within the scope of IFRS 19 f) Investment property that is measured at fair value g) Biological assets related to agricultural activity that are measured at fair value less costs of disposal h) Deferred acquisition costs, and intangible assets, …show more content…

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