Reporting the Impairment of Long Lived Assets and Long Lived Assets to Be
Disposed of
Department of Transportation, Bureau of Transportation Statistics, Office of Airline
Information
Number 223
Issue Date: 11/24/97
Effective Date: 1/1/98
Part: 241
Section: 2.1, 14
In March 1995, the Financial Accounting Standards Board issued
Financial Accounting Statement (FAS) No. 121, Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed of. This statement became effective for fiscal years
beginning after December 15, 1995, with earlier implementation
encouraged. Essentially, Statement No. 121 requires the
recognition of an impairment loss when events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. This applies to long lived assets, certain
identifiable intangibles, and goodwill related to those assets
to be held or used; and for long lived assets and certain
intangibles to be disposed of.
Section 2.1(a) of 14 CFR Part 241, Uniform System of Accounts
and Reports for Large Certificated Air Carriers, states:
(a) The accounting provisions contained in this part
are based on generally accepted accounting principles
(GAAP). Persons subject to this part are authorized
to implement, as prescribed by the Financial Accounting
Standards Board, newly issued GAAP pronouncements until
and unless the Director, Office of Airline Information
(OAI), issues an Accounting Directive making an initial
determination that implementation of a new pronouncement
would adversely affect the Department's programs.
Large certificated air carriers' financial and traffic data are
used to perform periodic updates to the Standard Foreign Fare
Level (SFFL), which are based on changes in air carrier operating
cost per available seat mile. These updates are mandated by the
International Air Transportation Competition Act of 1979. The
same cost data are also used in computing changes in the
Standard Industry Fare Level (SIFL) and the international service
mail rates.
Under Part 241 Section 6, Objective Classification of Balance
Sheet Elements, Paragraph (c) of Account 1311, Allowance for
Obsolescence - Spare Parts and Supplies states:
(c) Where changing conditions necessitate a revision
or adjustment in rates of accrual, such revision or
adjustment shall be made applicable to current and
subsequent accounting periods and shall not be applied
retroactively to prior accounting periods. Following
retirement of airframe or aircraft engine types to
which related, any balance remaining in this account
shall be offset against related balances carried in
balance sheet account 1300, Spare Parts and Supplies
and the net cleared to profit and loss accounts 88.5
Capital Gains and Losses - Operating Property or 88.6
Capital Gains and Losses - Other. (emphasis added)
Similarly, any capital gains and losses relating to the
retirement of airframes and aircraft engines, should also be
recorded under nonoperating income and expense as a capital
gain or loss related to operating property in Account 8188.5.
A conflict has arisen under the provisions of FAS No. 121 in
that the various independent public accounting firms engaged by
the air carriers for their annual audit have permitted the
classification of the impairment of long lived assets under FAS
No. 121, as an element of "operating income and expense" in
published air carrier annual reports to stockholders.
While the Department's general policy is to rely on GAAP
accounting for its uniform accounting system of large
certificated air carriers, the significance of the amount of
impairment recognized under FAS No. 121 has adversely affected
the Department's ability to establish reasonable adjustments to
the standard fares and rates, as required by law. In
recognition of this problem, Order 97-5-23, which established
the final service mail rates for the period January 1 through
June 30, 1997, addressed this problem in Footnote 2 (Page 3)
by stating:
2We note that Delta's treatment in the Form 41
submissions that contained the restructuring charges
as an operating expense is consistent with the standards
set forth in Generally Accepted Accounting Principles
(GAAP). Part 241 of our Uniform System of Accounts
(14 CFR Part 241) requires the recognition of the
gains and losses associated with the restructuring
charges to be reported as nonoperating expenses on
Form 41; however,
Section 2.1 of Part 241 allows air carriers to adopt
new GAAP pronouncements isued by the Financial
Accounting Standards Board unless otherwise directed
by our Bureau of Transportation Statistics (BTS).
Since ratemaking principles require that such charges
continue to be treated as nonoperating expenses, we
have asked BTS to instruct air carriers to include
specific notes to their relevant Form 41 schedules,
by entity, describing the nature and treatment of any
future expenses, such as restructuring charges, that
may be subject to exclusion from applicable ratemaking
databases, as in the instant case.
Accordingly, it is the purpose of this directive to inform
air carriers that impairments of long lived assets and long
lived assets to be disposed of, which are recognized in
accordance with the provisions of FAS No. 121, must be accounted
for as capital gains and losses, which are included in
nonoperating income and expense, as required by the Uniform
System of Accounts in 14 CFR Part 241.
The impact of impairments recognized under FAS No. 121 must also
be fully disclosed on Form 41 Schedule P-2, Notes to BTS Form 41
Report. At a minimum, disclosure must include a brief
description of the impairment being recognized, category(ies) of
assets that are affected, the specific account(s) on the
Statement of Operations (Form 41 Schedules P-1.1 or P-1.2, as
applicable) where the impairment is recorded along with the
accompanying dollar amount. Those air carriers filing schedule p-1.2 must
report the above information for each operating entity (domestic, atlantic,
pacific, latin america) that is affected by the impairment.
This action is taken under authority delegated in 14 CFR
385.19(b).
If you have any questions, please contact Mr. Clay Moritz at
(202) 366-4385.
Timothy E. Carmody
Director
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