CPA Practice Advisor

JUN 2018

Today's Technology for Tomorrow's Firm.

Issue link:

Contents of this Issue


Page 14 of 35

JUNE 2018 ■ 15 THE SMALL BUSINESS CHANNEL DRY DOCKING: A Ship-Owner's Accounting Dilemma By Sameh A. Rassoul, CPA, CGMA Dry Docking is an essential process for all shipping companies that own ships, regardless of the type of a ship (marine vessel, cargo vessel, container ship or passenger ship) each ship should be operated through a set of regulations or otherwise operating the ship will be prohibited. These regulations are set by the IMO (International Maritime Organization) and the U.S. Coast Guard primarily to emphasize safety prospects for ships, crew and environment … so complying with those regulations is mandatory by all ship-owners. The ship (an expensive asset) is sometimes called "her majesty" among correspondences in the shipping field. Among those regulations there is the Class of Registry requirement, which requires ship-owners to register a ship in a class which is approved by the regulatory agencies mentioned above to carry out the supervision and ensure the commitment of ship-owners to follow a set of standards which are definitely designed to achieve a certain secured level of safety operations. Those Classes of Registry require (among other requirements) regular dry-docking processes. Each ship working in service has to comply with a regular maintenance process called "Dry-Docking," a regular, periodic overhauling process founded primarily because of the very special nature of ships' environment which is under water operations. Dry-docking can cost hundreds of thousands U.S. dollars (sometimes millions) to maintain the ship in the standardized working condition. Dry-docking is a term used for repairs when a ship is taken to the service shipyard in the (dry dock). The ship is removed from the water to enable maintenance and inspection work to be performed on the exterior part of the ship that stays below the waterline. Usually, dry-docking is done at periodic intervals (generally 3 or 5 years), and there are regulations as mentioned above that mandate inspections of the ship's bottom to be carried out at regular intervals to ensure safety of the vessels. Types of repairs vary widely according to many circumstances such as the operating environment and water reaction with the hull of a ship because of salt water reactions with steel, the hull thickness, the humidity and temperature effects on various parts of the ship, from the hull to the main engine, passing by the accommodations of the crew. Accordingly, we can account for a dry-docking process as a complete unlimited major overhauling process for a ship that definitely affects a ship's useful life includes but not limited to spare parts purchasing, anchors, tanks or hull replacement (steel replacement scale depends on various environmental & operational conditions), main engine & auxiliary engines overhauling, main deck overhauling, crank shaft, compressors, turbines, cylinder liner, electric devices, pumps and even life boats, rafts and safety gear. WHAT ABOUT THE ACCOUNTING TREATMENT FOR THE DRY-DOCKING PROCESS? The accounting treatment for the dry docking process has been debated for a long time perhaps because of the complications associated with the nature of the process. The debate mainly revolved around whether to capitalize the dry-docking costs or to directly expense them during the accounting period in which they occurred? LATEST SMALL BUSINESS NEWS 5 Retirement Tips for Small Business Owners. Preparing financially for retirement can be complicated for anyone, but for small business owners the process often poses even more challenges. Businesses Take Lead on Addressing Climate Change. The private sector is advancing the cause to manage resources for cleaner, more resilient, secure and affordable energy supplies. Small Businesses Conflicted Over Risks and Insurance. Nearly a third of SMBs are putting their future at risk by having no forms of insurance whatsoever, nor do they have a solid contingency plan in place to mitigate risk. As Business Revenues Grow, Hiring Becomes a Challenge. Small business owners are overwhelmingly optimistic about the financial outlook of their businesses and the national economy, but many are facing challenges with hiring. Trade War Threat Doesn't Worry Most SMB Owners. Despite uncertainty over a future trade war, most advisors surveyed said tariffs will not impact the sale of business for both buyers (56 percent) and sellers (60 percent). THIS MONTH'S TOP SMALL BUSINESS SOCIAL MEDIA POSTS ■ 5 TV Shows to Teach Kids About Business. AICPA Insights. ■ Business ID Theft is On the Rise: How to Help Your Clients. Firm of the Future. ■ How Small Businesses Can Survive Sales Cycles. MarksNelson Blog. ■ Building a Network When Part of a Family Business. Harvard Business Review. ■ 4 Ways to Build a Movement (Not just a Brand). Forbes. Continued online at

Articles in this issue

Links on this page

Archives of this issue

view archives of CPA Practice Advisor - JUN 2018