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Shipping Accounting For Owned Vessels by
Shipping Accounting For Owned Vessels by
April 2011
Global Shipping
1 & Ports Group IFRS for Shipping | Accounting for owned vessels by shipping companies
Deloitte
Accounting for owned vessels by shipping companies
Contents Page
Forward 3
2. Accounting Guidance 5
2.8 Impairment 14
3. Practical Examples 18
I welcome you to our first of a series of publication focussing on accounting issues for the shipping
industry. This continues our focus at Deloitte to find ways to providing in-depth insights to financial
accountants working across the shipping industry. Vessel fixed asset accounting is a complex area
for all account preparers whether you are working under International Financial Reporting Standards
(IFRS) or other generally accepted accounting principles.
This publication in our series seeks to provide details of the accounting principles involved with
acquiring vessels. It also seeks to be a practical and pragmatic guide on how all of the complex
related accounting rules need to be applied. The manual covers numerous examples, drawing on
real life examples of situations and circumstances that we have encountered over recent years under
IFRS. We would be interested to hear from you if there are other commonly encountered issues that
you believe we should consider in the future.
This publication is based on accounting standards currently on issue and effective under IFRS.
There are currently a number of IFRS new standards and exposure drafts which are likely to change
the accounting over the coming five years; these are not within the scope of this publication.
I would like to take this opportunity of thanking Dina Karsas and Athena Kartsaklis who as part of our
shipping team have contributed significantly to the development of this publication.
George D. Cambanis
Global Shipping & Ports Leader
These purchase orders often have significant value for several reasons:
• The purchaser has obtained volume or other discounts from the shipyard which another shipping
company cannot obtain.
• There is a shortage of available vessels in the secondary market.
• There is a shortage of available construction slots for the desired delivery dates.
Purchasers often also obtain options for additional vessels when they place orders. These options
also guarantee the purchaser a fixed price and delivery slot for these additional vessels.
Consequently, the options can have significant value.
Options over vessel are derivatives over non-financial assets and are therefore generally outside of
the scope of IAS 39 Financial Instruments: Recognition and Measurement.
However, if the order or option has been purchased in the secondary market, the amount paid to
acquire it should be held on balance sheet and treated as part of the purchase cost of the vessel
itself. The purchased order or option would typically be classified as a prepayment and therefore
would not qualify to be held at fair value. It would normally be classified as a non-monetary item and
therefore not retranslated at each reporting date.
Under IFRS, it is necessary to consider what type of asset the PDI represents. Historically industry
practice has been to treat PDIs as property, plant and equipment, representing the cost of an asset
under construction for the purchaser specifically.
In order for an asset to be included within property, plant and equipment, it must meet the definition
of property, plant and equipment under IAS 16 Property, Plant and Equipment. Property, plant and
equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than one period. [IAS 16.6]
PDIs may meet the definition of property, plant and equipment if the payments made represent the
part payment towards an asset in the course of construction by the shipyard for the purchaser: in
other words, if in substance ownership of the underlying asset already rests with the purchaser and it
is being constructed by another party on the purchaser’s behalf.
There is no specific guidance in IFRSs on when it is appropriate to regard a vessel that is being
constructed as an asset of the purchaser, rather than an asset of the seller. However, we consider
that the principles in IFRIC 15 Agreements for the Construction of Real Estate could be considered
relevant on this point. IFRIC 15 provides guidance on when revenue should be recognised by
companies engaged in the construction of real estate and we believe its principles are inherently
relevant for PDI accounting. Applying this guidance to vessels it would be necessary to consider
whether the buyer is able to specify the major elements of the design of the vessel to such a degree
that the asset is specific to that customer rather than being a generic product that could be sold to a
number of customers.
We do not believe that the terms of many PDI payments would meet these criteria for the ownership
of a portion of the underlying asset to have been transferred to the purchaser on payment of the PDI.
We note that the financing of PDIs is a continued area of difficulty for the industry, partially due to the
fact they do not provide security over the underlying asset in the event of a default by the shipping
company. IFRIC 15 is relatively new guidance that does not directly apply to the shipping industry,
and therefore we believe that it remains acceptable for the industry to continue to adopt the approach
of capitalising PDIs as assets under construction. However this approach may need further
consideration in light of ongoing changes in IFRSs in this area.
As discussed in 1. above, the ownership of the vessel is unlikely to transfer to the purchaser until the
point of delivery. If this is the case, then the pre-delivery payments could be recorded as
prepayments towards the future purchase of an asset. Because of the inherent difficulties outlined
above under the above option 1., it is likely that this accounting treatment is the most appropriate
based on the terms of the various PDI arrangements we have seen.
As the vessel is constructed the cost of the work undertaken should be accrued for by the entity it is
being constructed for using appropriate exchange rates as the work is accrued. Alternatively, where
the timing of the PDIs materially matches the timing and value of the work undertaken, it may be
appropriate simply to capitalise these. However, both these approaches will require a detailed
understanding of what work is being done and the value of this. Such information is normally
available to parties purchasing vessels via the on site supervision of the construction of the vessel by
representatives of the shipping company.
As assets in the course of construction are non-monetary in nature they should not be retranslated at
each year end. [IAS 21.23]
No depreciation should be provided on the PDIs until the vessel is ready for use, i.e. until it is
delivered. [IAS 16.55]
The payment should be recorded within property, plant and equipment. Where the aggregate amount
of PDIs is material they should be shown separately under a heading such as “Vessels under
construction”, or “Advances for vessel constructions” rather than in one of the other classes of
Property, Plant and Equipment. [IAS 16.74b]
PDIs made in a foreign currency should be recorded on initial recognition in the entity’s functional
currency, translated from the foreign currency at the actual exchange rate on the date that the
payment is made, assuming no hedging is in place. [IAS 21.21]
As prepayments are a non-monetary asset they should not be retranslated at each year end date.
[IAS 21.23]
As discussed above, there will often be a significant financing element affecting the amount of such a
prepayment. In such cases, even though a prepayment is not a financial asset, we believe it will be
appropriate to reflect the implicit financing by unwinding the financing discount over time (if material),
using the discount rate implicit in the original transaction.
The amount paid will be recorded as a prepayment within non-current assets. Upon delivery of the
vessel the balance should be included as part of the cost of the asset within Property, Plant and
Equipment.
The capitalisation of borrowing costs should commence when the PDI is made, providing the
following criteria are being met:
With respect to disclosure, the purchaser should disclose the amount of borrowing costs capitalised
in the period and the capitalisation rate used to determine the amount of borrowing costs eligible for
capitalisation. [IAS 23.26]
• The total net cash paid to the shipyard in respect of all items. [IAS 16.6];
• Any capitalised borrowing costs or finance charges accrued as a result of making PDIs to the
shipyard;
• Vessel registration and certifications;
• Seaworthiness certificates;
• Legal costs and other related professional fees which are directly associated with the purchase of
the vessel;
• Amounts paid to acquire purchase options in respect of the vessel; and
• Any other costs directly attributable to bringing the vessel to the location and condition necessary
for it to be capable of operating in the manner intended by management. For instance, this may
include the costs of lubricants and bunkers consumed prior to delivery for example during the sea
trials, supervision costs incurred during the construction period.
The net cash paid for the vessel will be the aggregate of the PDIs and the balancing payment made.
Where the PDIs are denominated in a foreign currency and as they are non-monetary items (see
section 2.2) each of these payments will be held on balance sheet at the historic rate on the date the
payment was made. The net cash paid for the vessel will therefore consist of a weighted average
blend of the exchange rates prevailing at the date of payments.
However, the standard also allows that if the useful life and depreciation method of two components
are materially the same they may be grouped together. [IAS 16.45]
Components of vessel that should be separately identified include not only the physical items that will
require replacement during the life of the vessel, but also the notional overhaul element for items that
require major overhaul in the future, , during the life of the vessel.
We have seen most dry-bulk, tanker and container companies identify two groups of components.
The fair value of each of these components should be identified at the date of acquisition of the
vessel. Prices for each of these individual components are often not specified in the purchase
agreement for the vessel. It will therefore be necessary to estimate the fair value of the dry-docking
component taking into account the vessel’s last and next scheduled dry-docking. The fair value could
be estimated by obtaining values from other sources such as the shipyard(s), in-house specialists,
the maintenance providers or independent vessel appraisers. The fair value will be the actual value at
which the entity is able to obtain these components, including any discounts from list price it receives
from the component or service provider. Other vessel types, such as cruise ships or ferries, will
generally also have hotel type components which are expected to be replaced at regular intervals.
A vessel will require seaworthiness checks, under water inspections, intermediate surveys as well as
special surveys throughout its useful economic life. An asset should be carved out from the main
vessel asset for each type of these checks. In practice, only the dry-docking and special survey
checks will be sufficiently material to warrant separate capitalisation. For instance, a tanker may
require a special survey every 5 years and an intermediate survey in between. Separate assets for
each of these should be created when the initial componentisation of the vessel is done, if expected
to be material.
Typically a new vessel will be assumed to be supplied with each of these components “brand new”.
In other words the vessel will be assumed to be in the condition that it would be had it just been
through each of the checks and overhauls required so that the full cost of each of these will be carved
out as separate components in the initial allocation.
Depending on whether there are any PDIs and how the cost of the vessel is recorded in the books,
as described in sections 2.2 and 2.4, the elements of the cost may be recorded at different exchange
rates. For the purposes of the componentisation it would be appropriate to translate all the
components at the same rate on initial recognition based on the blended average rates used for the
amounts paid for the vessel. Subsequent expenditure on maintenance which is capitalised should be
translated at the appropriate rate when it is incurred.
Useful life
Useful life is the period over which an asset is expected to be available for use by an entity.
The vessel hull and engine component will be depreciated over their useful life to their residual value.
Because it is often not possible to replace the engines prior to disposal of the vessel the engine will
have the same useful life as the hull. The useful life will not change unless there is a change in the
intended period of ownership of the vessel. Maintenance of the vessel should have no impact on the
depreciation of the vessel hull and engine component.
Some examples of estimated useful lives we have typically seen in practice are:
Dry-docking component
The dry-docking component of a vessel will be amortized to the date of the next expected dry-
docking. If the new dry-docking is performed prior to the initial expected dry-docking date, the useful
life should be adjusted prospectively as a change in estimate.
Depreciation basis
IAS 16 does not specify which approach should be used to allocate depreciation between periods.
The approach of using a straight line basis has the benefit of simplicity and is used by many vessel
owners.
Residual value
The residual value of an asset is the estimated amount that an entity would currently obtain from
disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the
age and in the condition expected at the end of its useful life. [IAS 16.6]
Changes to estimates
The judgements made for useful lives and residual values should be revisited at each reporting date
or at least annually. Material changes in the policy covering ownership of vessel will need to be
reflected in such judgements.
Where the estimated useful life or estimated residual value for a vessel change for any reason, this
change should be accounted for prospectively. [IAS 16.51] In other words if the estimated residual
value of a vessel falls, the additional depreciation charge should be spread over the remaining useful
life of the vessel, without any catch up charge for the vessel’s life to date.
Depreciation basis
Finance teams require access to special survey and dry-docking data including the next expected
dry- docking date, in order to calculate the depreciation charge for the dry-docking component.
Residual value
The residual value of the dry-docking component is typically assumed to be zero as they will be fully
replaced when the next relevant overhaul is undertaken. It is not usually possible to determine the
residual value of a maintenance component part way through its life. A common approach is
therefore to assume that the residual value is determined by reference to the original cost and
reduces over time in line with the chosen depreciation method, assuming there is no evidence to the
contrary. The net book value on the date of disposal is assumed to be its residual value.
To determine the residual value of a vessel it is normally necessary to obtain the light weight tons of
the steel within the vessel and an appropriate rate for the steel scrapping value. In practice, an
average market steel value is often used to compute the scrap value.
The residual value should be stated net of anticipated costs to scrap the vessel. This will be unique to
each owner and will depend on factors such as where the owner intends to scrap the vessel. In
addition to the steel scrap value, there may be other costs to consider such as costs to arrive at the
scrap yard or commissions.
By choosing to dispose of a vessel significantly before the end of its life an owner is taking a
substantial economic risk on the residual value of the vessel and this is reflected in the potential
volatility in the depreciation charge. The commercial rationale for such accounting is limited to the
fact that owning the vessel will always give the shipping company or lessor a valuation risk
concerning the value of the vessel at the date of disposal. The accounting principles require that this
risk is effectively re-measured at each balance sheet date based on the latest market value data. IAS
16 is very clear in its definition of residual value that preparers of accounts should not take the ‘long-
term’ view of value but specifically reflect the change in value through the depreciation charge at
each reporting date.
An entity recognises in the carrying amount of an item of property, plant and equipment the cost of
replacing parts of such an item when that cost is incurred if the recognition criteria are met, [IAS
16.13] and the amount in itself is deemed to be material.
The accounting treatment for unplanned maintenance work depends upon the work undertaken. If it
replaces a component which has been separately identified for depreciation purposes and therefore
fully restores this previously partially depreciated component then it will be accounted for as a
replacement of that component.
If the unplanned maintenance work replaces a component which has not previously been depreciated
separately, then it should accounted for the disposal of the existing component anyway.
All day to day maintenance work which does not materially enhance the asset will be expensed as
incurred.
When major planned maintenance work is undertaken the cost should be capitalised. For instance
when an engine overhaul is undertaken the cost of the overhaul will be capitalised as a new asset
that will then be depreciated over the period to the next overhaul. The depreciation of the previous
overhaul will typically have been calculated such that it had a net book value of nil when the current
overhaul was undertaken. If this was not the case, e.g. because the work was required earlier than
expected, then any remaining net book value of the old component should be expensed immediately.
[IAS 16.14]
The initial carve out of components should include all major maintenance events which are likely to
occur over the currently adopted useful life of the vessel. Sometimes, it may subsequently be found
that the initial allocation was insufficiently detailed, in that not all components were identified. In this
situation it is necessary to determine what the net book value of the component would currently be
had it been initially identified. This will sometimes require the initial cost to be determined by
reference to the replacement cost and the associated accumulated depreciation charge determined
using the rate used for the residual hull. This is likely to leave a significant net book value in the
component being replaced which will need to be written off at the time the replacement is capitalised.
[IAS 16.14]
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs
to sell and its value in use. [IAS 36.6]
If there is any indication that an asset may be impaired, a recoverable amount shall be determined for
the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, an
entity shall determine the recoverable amount of the cash-generating unit to which the asset belongs
(the asset's cash-generating unit). [IAS 36.66]
There is significant volatility in market prices for vessels generally. While it is relatively easy to
forecast vessel supply, based on production rates of the major shipyards, demand is directly linked to
wider economic conditions. There is therefore cyclicality in vessel prices.
There is also significant volatility in demand for particular vessel types. This will depend upon factors
such as the availability of substitutes or the development of new vessels in that class, the liquidity of
the market in that type of vessel and the fortunes of particular market segments. Brokers can provide
vessel values by reference to transactions of which they are aware and where there are no
transactions for a particular model of vessel they will normally extrapolate a value from transactions
for similar types of vessel. In such situations it is important to understand the judgements involved
and, if necessary, obtain a second independent valuation.
Unless they have undertaken a physical inspection of the vessel, brokers normally provide a value
based on historical sales and purchase data of similar vessels. Where this is used to determine the
fair value for accounting purposes it will be necessary to take into account the actual maintenance
condition of the vessel and adjust the brokers’ value accordingly. Where this is considered to be
material it may be necessary to arrange a physical inspection of the vessel. The maintenance
adjusted market value should then be used in the impairment review of the entire vessel, including
the separately capitalised and depreciated components.
If a ship-owner decides to sell a vessel, the vessel may require substantial marketing. This can be
undertaken either in house, if there is the appropriate expertise, or outsourced to a broker.
Shipping companies typically have robust estimates of the daily costs of operating a particular vessel
which can be used as the basis for a cash flow projection for a value in use calculation. However,
allowances should be made in the model for volatile costs, with reasonable estimates made of likely
price increases and a sensitivity analysis undertaken.
In addition revenue estimates, have significant potential volatility, with significant exposure to both
general economic conditions and unforeseen events. Reasonable revenue estimates should
therefore be made and sensitivities considered.
For lessors future cash flows are normally more predictable, although estimates will need to be made
where future cash flows are dependent upon extending an existing charter or entering into new
charter agreements. These estimates should be based on what management consider to be the most
probable likely outcome.
A suitable discount rate should also be determined, which takes into account the significant risks to
which the shipping industry in general is exposed and those affecting the particular vessel.
Where a decision is made to dispose of a vessel currently held, the shipping company will need to be
reasonably certain of being able to dispose of them within the coming year, in the current market
conditions, for them to be classified as held for sale assets.
Where vessels have previously been classified as held for sale but have not been sold within one
year of the classification, IFRS 5.B1 (c) contains specific requirements if the vessels are to continue
to be classified as held for sale. We note that the used vessel market has been volatile in recent
years and the decision to dispose of vessels will need to take account of short term liquidity
considerations as well as the current market prices of vessels. Furthermore, in the current market
conditions potential purchasers of the vessel may not be able to find the necessary finance.
Whilst it is permitted for vessels to be included in the category of assets held for sale while the
vessels are being used, in the event that they cease to qualify as held for sale a reclassification to
fixed assets would be required, with an adjustment to the net book value to account for the
depreciation that would have been charged on the assets, had they not been reclassified to held for
sale assets.
Once an asset is classified as held for sale, depreciation should cease on the asset and it should be
reclassified to held for sale assets (in current assets) at the lower of the carrying amount and fair
value less costs to sell. Subsequently, the held for sale asset should be re-measured to the lower of
these amounts at each period end, by comparing the carrying amount to the fair value less costs to
sell. The fair value less costs to sell should be measured in the sale currency of the likely disposal
contract (usually US$), taking account of the period end exchange rate.
Where subsequent expenditure on a vessel improves its marketability or sale price this should be
capitalised into the carrying value of the held for sale asset. The new carrying value of the vessel
should be compared with the new fair value less costs to sell, and written down to the latter if lower,
with any reduction in the carrying value being taken to the income statement. In addition, if
subsequent expenditure does not meet the definition of an asset it should be expensed.
Professional costs
IAS 16 stipulates that directly attributable costs should be included in the recorded cost of the vessel
[IAS 16.16]. These may include related professional fees incurred on an incremental basis. These
are often more significant for the purchaser of a vessel in the secondary market as they are borne
primarily by the shipyard when buying a new vessel. It should be noted however that those fees
incurred whilst searching for a suitable vessel are not directly attributable to a specific asset and
should therefore be expensed as incurred.
Lease conditions
IFRS does not specifically address how to account for favourable or unfavourable attached time
charters acquired with the vessel. However, IAS 16.44 provides some guidance indicating that if an
entity that acquires property, plant and equipment subject to an operating lease in which it is the
lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that
are attributable to favourable or unfavourable lease terms relative to market terms [IAS 16.44]. By
applying this guidance, if the purchaser obtains a vessel with a favourable attached time charter, the
element of the purchase price that relates to the time charter would be capitalised separately and
depreciated over the period that the shipping company will benefit from these favourable charter hire
rates. Conversely, if there are unfavourable attached charter hire terms, this accounting will have the
effect of reducing the purchase price of the vessel. However, in the absence of explicit guidance
under IFRS, practice may be mixed on the accounting for favourable or unfavourable attached time
charters acquired with the vessel, and we have seen companies present the element of the purchase
price that relates to favourable or unfavourable attached time charter as an intangible or a liability,
respectively, which is amortised over the remaining period of the charter agreement into revenue.
In the example below for simplicity we have assumed a vessel which has only two components
identified which it has purchased – a vessel excluding the dry-dock component and a dry-dock
overhaul component. As described in section 2.5.3 depending on the vessel type there could be a
number of other major components to be separately identified and depreciated.
An entity purchases a ship for CU40 million. This ship will be required to undergo a dry-dock (“DD”)
overhaul every five years to restore its service potential. At the time of purchase, the service potential
that will be required to be restored by the overhaul can be measured based on the cost of the dry-
docking if it had been performed at the time of the purchase of the ship, e.g. CU4 million.
The following shows the calculation of the depreciation of the ship for Years 1 to 5, using the straight-
line method.
By the end of Year 5, the service potential would be fully depreciated. When a dry-docking is carried
out in Year 6, the expenditure is capitalised to reflect the restoration of service potential, which is then
depreciated over the period to the next overhaul in Years 6 to 10.
The process in Years 6 to 10 repeats every five years from Year 11 onwards until Year 30, when both
ship and the cost of dry-docking are fully depreciated and a new ship is acquired.
Note that the entity is required to use its best efforts to identify separately components such as the
DD component when the asset is first acquired or constructed. That separate identification, and the
subsequent separate depreciation of the DDl component, is not, however, a necessary condition for
the capitalisation of the subsequent expenditure on the overhaul as part of the cost of the asset.
If, in the example above, the entity had failed to identify the DD component at the date of acquisition
because it was not considered significant, and had not depreciated that component separately during
Years 1 to 5, the expenditure on the overhaul in Year 6 would still be capitalised as part of the cost of
the asset, provided that the general recognition criteria were met. In this circumstance, the entity
would be required to estimate the remaining carrying amount of the DD component at the date of the
first overhaul (which would be approximately CU3.33 million, i.e. CU4 million depreciated for 5 years
out of 30), and to derecognise that carrying amount at the same time as the expenditure on the
overhaul is capitalised.
During October 2010 Poseidonos Shipping Company decided to sell one of its vessels. The
Company obtained approval from its directors during October 2010, and started looking for a buyer.
Also during October 2010, the Company started to actively market the vessel – contacting brokers,
started negotiating sales price, etc.
During December 2010, the Company entered into a Memorandum of Agreement (MOA) with an
unrelated party to sell vessel A, with a NBV of $60 million, for $41 million (including approximately $1
million of costs to sell), which will approximate to a $20 million loss.
A. Vessel A is on a time charter (TC) with Charterer X until July 2013. The charter party
agreement prohibits that vessel A, then on a time charter with Charterer X would not be sold
until January 20, 2011, or later until completion of the trip that had already been arranged by
the Charterer.
B. During October 2010 vessel A was on a TC with Charterer X. The Charter Party allows the
owners of the vessel to sell the vessel to a third party and the Charterers cannot
unreasonably refuse this sale.
Case A Case B
Vessel will be classified as asset held and Vessel will be classified as asset held for sale as
used as of December 31, 2010. of December 31, 2010.
Poseidon Shipping Company entered into a contract with a shipyard on July 1, 2010 for the
construction and purchase of two Panamax vessels. The contract price was $50 million per vessel,
with a scheduled delivery date of December 1, 2011. The payment terms are as follows:
Upon entering into agreement July 1, 2010 10% contract $10 million
- Directly related to the vessels: bank loan at variable rate (Libor+margin) to cover 70% of the
cost of the vessels. Interest due quarterly, beginning on date of first draw. For 2010, we
assume that the variable loan rate was 5% throughout the year.
Description Amount
Construction related costs, supervision, travel, vessel inspection, site team $50,000
Total $4,059,000
Step 1: Identifying vessel acquisition costs to capitalize for year ended December 31,2 010
Description Amount to
capitalize
Construction related costs, supervision, travel, vessel inspection, site team $50,000
Eligible expenditures include capitalized expenditures (net of progress payment collections) for the
qualifying asset that have required the payment of cash, the transfer of other assets, or the incurring
of a liability on which interest is recognized.
Description Amount
Installment payment, financed through bank loans (70%) $70,000,000
Total $104,055,000
The most appropriate rate to use as the capitalization rate is the rate applicable to specific new debt
resulting from the need to finance the acquired assets.
Total $495,405
(*) Indirect costs were assumed to be incurred on July 1, 2010, as they related to the brokers’
commissions and other costs due up-front.
Description Amount
Installment payments $50,000,000
Total $54,550,405
Major Maintenance Costs are generally Costs are generally Costs are either
/ Overhaul Costs capitalized in asset capitalized in asset expensed as incurred,
(Dry-docking and costs and depreciated costs and depreciated deferred and amortized
Special Survey according to the according to the until the next overhaul,
Costs) component approach. component approach. or accounted for as a
part of the cost of the
asset.
Acquired Time Diversity in practice The element of the The element of the
Charters with may exist. IAS 16 purchase price that purchase price that
Vessel indicates that the relates to favourable relates to favourable
Acquisition element of the or unfavourable or unfavourable
purchase price that attached time charter attached time charter
relates to favourable or will be a separate will be presented as an
unfavourable attached component of the intangible or a liability
time charter be treated vessel cost and respectively and will be
as a separate depreciated over the amortized over the
component of the remaining charter remaining period of the
vessel cost and period. charter agreement into
depreciated over the revenue.
remaining charter
period
Assets Held When vessels qualify There is no equivalent When vessels qualify
for Disposal as “held for sale” they classification under as “held for sale” they
are separately UK GAAP and assets are separately
classified and continue to be classified and
depreciation ceases. depreciated until they depreciation ceases.
are disposed of.
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