Academic journal article Journal of the International Academy for Case Studies

Instructors' Notes: Impairment Analysis: Comparison of Impairment of Long-Lived Assets between Us Gaap and Ifrs

Academic journal article Journal of the International Academy for Case Studies

Instructors' Notes: Impairment Analysis: Comparison of Impairment of Long-Lived Assets between Us Gaap and Ifrs

Article excerpt


This case is designed to achieve five learning objectives: (1) analyze the difference between US GAAP and IFRS on the financial statements of companies in the same industry; (2) apply the calculation made by a US publically listed company for the impairment of long-lived assets; (3) evaluate the impact accounting estimates have on the balance sheet (statement of financial position) and the income statement (statement of financial position); (4) evaluate whether the estimates used by the publically listed company are appropriate; (5) enhance critical thinking skills by requiring students to identify, comprehend and apply relevant sections of US GAAP and IFRS . Although this case can be performed individually, the case can be an effective group exercise. The complexity and uncertainty are fertile ground for extended critical thinking, teamwork, and intra and inter-group discussions. All three questions are fertile for intriguing group discussions. These discussions can unsurface and expand issues previously elaborated on within the group. The goal of these discussions is not to reach consensus, but rather to investigate legitimate differences. These differences impose comparability in reporting across companies. Students become aware that well-reasoned, GAAAP following individuals, can arrive at varying responses and conclusions.


This case is designed for upper level undergraduate accounting courses or graduate accounting courses. It is expected students will have no prior experience with the shipping industry. As such a brief overview of the graphs presented in the appendix to the case will be beneficial to help prepare students for the project. During the implementation of the case, many students have been reluctant to create estimates due to limited knowledge of the industry. Students need to be reminded however that even with years of experience in the industry, it is impossible to predict the future and that estimates are simply that: estimates. With that being said, students are expected to provide support as to why their estimates chosen are reasonable and their corresponding calculations of any potential impairment losses are fairly computed. Instructors should note however that these calculations and decisions are not necessarily accurate, as they hinge on significant estimates. All we can argue is that they are fairly computed. Beaudoin and Hughes (2014) similarly used asset impairments only in the IFRS arena to allow students to see how varying assumptions must be made, and that the use of these varying assumptions can yield different valuation amounts.

Students were given the final 30 minutes of class on two occasions to work on the group project with approximately one week between the occasions. During the first occasion, the instructor answered questions on the different graphs and explained to students how to read them. For figures 2 and 3, students were shown that the spot revenue rate in 2007 was between $100,000 and $180,000 per day. This compared to a spot revenue rate of between $6,000 and $20,000 per day in 2012 (a common mistake by students was to assume the revenue was for an entire year or that these numbers were accurate predictors of the future). Additional information on revenue is more fully discussed below. The instructor also explained how figures 4 through 6 could be used to estimate fair value, as discussed below. The instructor should continue to emphasize the imprecise nature of long-term estimates.


In the 2012 10K, management states "For periods of time where our vessels are not fixed on time charters, we utilize an estimated daily time charter equivalent for our vessels' unfixed days based on the most recent ten-year historical one-year time charter average." The 12 month time charter rates are presented in Figure 3 and are shown as a per day rental amount. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.