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The Snowy Ridge Ski Resort case study illustrates the use the new Fair Value Measurement Standard SFAS No. 157 with various assets in connection with the acquisition of a ski resort and subsequent test for impairment. The case study introduces students to the two primary approaches for measuring fair value Market and Income. These approaches are then used to compute fair value for a variety of assets. In addition, students become familiar with the Fair Value Hierarchy and classify fair value measures in accordance with the hierarchy. The assets to which the fair value measures are generated include: marketable securities; property, plant, and equipment; real estate under development; and goodwill. The fair values and other input data are then used to test for impairment of the operating assets and goodwill. Thus, the case study illustrates the interplay between fair value measurement and impairment testing in a simple setting to give the student a foundation for understanding how fair value measurement is used in GAAP for operating assets.

A business holding appreciated assets is worth less to its owner if it is held in a C corporation than the fair market value of the assets. This fact arises from the double tax imposed on C corporations. One naive solution to this issue is for the shareholder to structure the sale of the business as a sale of stock in the corporation. What is often overlooked with this suggestion, however, is that the buyer will demand a discount in the price of the business if the deal is structured as a purchase of stock as opposed to a direct purchase of the assets. This economic reality is driven by the fact that the buyer forgoes the future tax savings from the step-up in basis in the appreciated assets of the target corporation in a stock acquisition. To illustrate this economic reality, this case study requires students to determine the present value of the future forgone tax savings to the buyer and to use that information along with the tax consequences to the seller to negotiate a compromise final purchase/sale agreement between the parties.