| Significant Accounting Policies and Recent Accounting Pronouncements | 2. Significant Accounting Policies and Recent
Accounting Pronouncements (a) Principles of Consolidation The
holding company consolidates voting interest entities in which it owns all, or at least a majority (generally, greater than 50%) of the
voting interest. Variable interest entities (“VIE”) are entities, as defined under ASC 810, that in general either have equity
investors with non-substantive voting rights or that have equity investors that do not provide sufficient financial resources for the
entity to support its activities. The holding company has a controlling financial interest in a VIE and is, therefore, the primary beneficiary
of a VIE if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and
the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. A VIE should have
only one primary beneficiary which is required to consolidate the VIE. A VIE may not have a primary beneficiary if no party meets the
criteria described above. The Partnership evaluates all arrangements that may include a variable interest in an entity to determine if
it is the primary beneficiary, and would therefore be required to include assets, liabilities and operations of a VIE in its consolidated
financial statements. As of the years ended December 31, 2021, 2020 and 2019, no such interests existed. (b)
Use of Estimates (c)
Other Comprehensive Income (d)
Foreign Currency Translation (e)
Cash and Cash Equivalents :
The Partnership considers highly liquid investments, such as time
deposits with an original maturity of three months or less, to be cash equivalents. 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): (f)
Restricted cash :
Restricted cash may comprise of (i) minimum liquidity collateral requirements
or minimum required cash deposits that are required to be maintained under the Partnership’s financing arrangements, (ii) cash
deposits in so-called “retention accounts” which may only be used as per the Partnership’s borrowing arrangements for
the purpose of serving the loan installments coming due or, (iii) other cash deposits required to be retained until other specified conditions
prescribed in the Partnership’s debt agreements are met. In the event that the obligation to maintain such deposits is expected
to elapse within the next operating cycle, these deposits are classified as current assets. Otherwise, they are classified as non-current
assets. (g)
Trade Accounts Receivable :
The amount shown as trade accounts receivable at each balance sheet
date, mainly includes receivables from charterers for hire from lease agreements, net of any provision for doubtful accounts, if any.
At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate
provision for doubtful accounts primarily based on the aging of such balances and any amounts in dispute. Operating lease receivables
under ASC 842 are not in scope of ASC 326 for assessment of credit loss. ASC 842 requires lessors to evaluate the collectability of all
lease payments. If collection of all operating lease payments, plus any amount necessary to satisfy a residual value guarantee, is not
probable (either at lease commencement or after the commencement date), lease income is constrained to the lesser of cash collected or
lease income reflected on a straight-line or another systematic basis, plus variable rent when it becomes accruable. Provision for doubtful
accounts as of December 31, 2021 and 2020, was nil. 0 (h)
Inventories :
Inventories consist of lubricants which are stated at the lower
of cost or net realizable value, following the adoption of ASU 2015-11, “Simplifying the Measurement of Inventory”. Cost
is determined by the first in, first out method. Inventories may also consist of bunkers during periods when vessels are unemployed or
under voyage charters and spares in warehouses, in which case, they are also stated at the lower of cost or net realizable value and
cost is still determined by the first in, first out method. When evidence exists that the net realizable value of inventory is lower
than its cost, the difference is recognized as a loss in earnings in the period in which it occurs (i)
Insurance Claims (j)
Vessels, Net straight-line October 1, 2019 0.685 0.500 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued):
This
change in accounting estimate which did not require retrospective adoption as per ASC 250 "Accounting Changes and Error
Corrections," results in additional future annual depreciation of $ 1.4 million.
For fiscal years 2021, 2020 and 2019, the effect of the change in the estimate on net income was a decrease by $ 1.4 million,
$ 1.4 million
and $ 0.3 million
respectively. For the fiscal years 2021, 2020 and 2019 the effect of the change in the estimate on earnings per share was a decrease
by $ 0.04 $ 0.04 0.01 respectively. Management estimates
that the useful life of each of the Partnership’s vessels to be 35
years from the date of initial delivery from
the shipyard. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life.
When regulations place limitations on the ability of a vessel to trade on a worldwide basis, such vessel’s remaining useful
life is adjusted as of the date such regulations are adopted . (k)
Impairment of Long-Lived Assets :
The Partnership follows ASC 360-10-40 “Impairment or Disposals
of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets.
The standard requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. When the estimate of undiscounted projected operating cash flows,
excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the asset is evaluated
for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. The Partnership reviews its long-lived
assets for impairment whenever events or changes in circumstances, such as business plans to dispose a vessel earlier than the end of
its useful life and prevailing market conditions, indicate that the carrying amount of the assets may not be recoverable. When such indications
are present, the Partnership determines undiscounted projected net operating cash flows for each vessel and compares the result to the
vessel’s carrying value. The fair values of the assets are determined through Level 2 inputs of the fair value hierarchy as defined
in ASC 820, “Fair value measurements and disclosures” based on management’s estimates, assumptions, use of available
market data, use of third party valuations and other market observable data. In developing estimates of future cash flows, the Partnership
must make assumptions about future charter rates, vessel operating expenses, fleet utilization and the estimated remaining useful life
of the vessels. These assumptions are based on historical trends as well as future expectations . The
projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet
days and by estimating charter rates for the unfixed days. Expected outflows for scheduled vessel maintenance and vessel operating expenses
are based on the Partnership’s budget by using historical data, which is adjusted annually with the assumption of the average annual
inflation rate prevailing at the time of the impairment test. In developing the estimate for the effective fleet utilization, the Partnership
takes into account the period(s) each vessel is expected to undergo her scheduled maintenance (dry-docking and special surveys) and each
vessel’s loss of hire resulting from repositioning or other conditions. In
developing estimates for the remaining estimated useful lives of the current fleet and scrap values, the Partnership utilizes methods,
which are identical to those employed as part of the Partnership’s depreciation policy. As and for each of the years ended December
31, 2021, 2020 and 2019, the Partnership incurred no impairment loss. (l)
Intangible Assets/Liabilities Related to Time Charters Acquired 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): When
the present value of the time charter assumed is greater than the current fair value of such charter, the difference is recorded as
an asset. When the present value of the existing time charter assumed is less than the current fair value of such charter, the
difference is recorded as liability. Assets and liabilities are amortized as adjustments to revenues over the remaining term of the
assumed time charter and are classified as non- current assets or liabilities, as applicable, in the accompanying consolidated
balance sheets. Impairment testing is performed when events or changes in circumstances indicate that the carrying amount of the
intangible asset may not be recoverable (m)
Accounting for Special Survey and Dry-Docking Costs :
The Partnership follows the direct expense method of accounting
for dry-docking and special survey costs, in which case, such costs are expensed in the period incurred. The vessels undergo dry-dock
or special survey approximately every five
years during the first fifteen years of their
life and, subsequently, every two and a half years to the end of their useful life. Costs relating to routine repairs and maintenance
are also expensed in the period they are incurred . 2.5 (n)
Financing Costs :
In accordance with ASU 2015-03, “Interest – Imputation
of Interest”, costs associated with long-term debt, including but not limited to, fees paid to lenders, fees required to be paid
to third parties on the lender’s behalf in connection with debt financing or refinancing, or any unamortized portion thereof, are
presented by the Partnership as a reduction of long-term debt. Such fees are deferred and amortized to interest and finance costs during
the life of the related debt instrument using the effective interest method. Unamortized fees relating to loans repaid or refinanced
as debt extinguishments and loan commitment fees are expensed as interest and finance costs in the period incurred in the accompanying
consolidated statements of income. Any unamortized balance of costs relating to refinanced long-term debt is deferred and amortized over
the term of the credit facility in the period that such refinancing occurs, subject to the provisions of the accounting guidance with
respect to “Debt – Modifications and Extinguishments”. (o)
Concentration of Credit Risk During
the years ended December 31, 2021, 2020 and 2019, charterers that individually accounted for more than 10 : Significant Accounting Policies and
Recent Accounting Pronouncements - Major Charterers (Table)
Charterer 2021 2020 2019
A 45 % 45 % 47 %
B 39 % 39 % 31 %
C 16 % 16 % 16 %
Total 100 % 100 % 94 % 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): (p)
Accounting for Revenues and Related Expenses :
The Partnership generates its revenues from charterers under time
charter agreements, which contain a lease as they meet the criteria of a lease under ASC 842 or ASC 840 under transition accounting.
In particular, under ASC 842, the Partnership elected certain practical expedients, which allowed the Partnership’s existing lease
arrangements, in which it was a lessor, classified as operating leases under ASC 840 to continue to be classified as operating leases
under ASC 842. Leases, which commenced on or after January 1, 2018, were classified as operating leases under ASC 842. The Partnership’s
vessels are each employed under a time charter agreement, where a contract is entered into with a charterer for the charterer’s
use of a vessel for a specific period of time and at a specified daily charter hire rate. If a time charter agreement exists and collection
of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of the time
charter. Revenues from time chartering of vessels are accounted for as operating leases. The Partnership early adopted ASC 842 as of
September 30, 2018, with adoption reflected as of January 1, 2018, the beginning of the annual period in accordance with ASC 250. The
Partnership has determined that the non-lease components in its time charter contracts relate to services for the operation of the vessel,
which include crew, technical, safety, commercial services, among others. The Partnership has elected to account for the lease and non-lease
component of time charter agreements as a combined component in its consolidated financial statements, having taken into account that
the non-lease components would be accounted for ratably on a straight-line basis over the duration of the time charter and that the lease
component is considered as the predominant component. The Partnership qualitatively assessed that more value is ascribed to the vessel
rather than to the services provided under the time charter agreements. Such revenues are recognized on a straight line basis at the
average minimum lease revenue over the rental periods of such charter agreements, as service is performed. Revenue
generated from variable lease payments is recognized in the period when changes in facts and circumstances on which the variable lease
payments are based occur. The residual or excess amounts from actually collected hire based on the time charter agreement for each period,
if any, is classified as deferred or prepaid revenue in the accompanying consolidated balance sheets. Unearned
revenue includes cash received prior to the balance sheet date for which all criteria to recognize as revenue have not yet been met
as at the balance sheet date and, accordingly, is related to revenue earned after such date. Apart from the agreed hire rate, the
owner may be entitled to an additional income, such as ballast bonus, which is considered as reimbursement of owner’s expenses
and is recognized together with the lease component over the duration of the charter. The Partnership has made an accounting policy
election to recognize the related ballast costs, mainly consisting of bunkers, incurred over the period between the charter
party date or the prior redelivery date (whichever is latest) and the delivery date to the charterer, as contract fulfilment costs
in accordance with ASC 340-40 and amortized over the charter period. During all years ended December 31, 2021, 2020 and 2019, the
amortization of the contract fulfilment costs was $ 0.2 million.
Voyage expenses, primarily consist of commissions, which are paid by the Partnership as well as port, canal and bunker expenses that
are unique to a particular charter and which are paid by the charterer under the time charter arrangements or by the Partnership
during periods of off-hire. All
voyage expenses are expensed as incurred, except for commissions. Commissions paid to brokers are deferred and amortized over the related
charter period to the extent revenue has been deferred since commissions are earned as the Partnership’s revenues are earned 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): (q)
Repairs and Maintenance (r)
Earnings/ (Loss) Per Unit no (s)
Segment Reporting one (t)
Fair Value Measurements 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): (u)
Commitments and Contingencies :
Commitments are recognized when the Partnership has a present legal
or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will
likely be required to satisfy such obligation and a reliable estimate of the amount of such obligation can be made. Provisions are reviewed
at each balance sheet date and adjusted to reflect the present value of the expenditure expected to be required to settle the obligation.
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless there is a remote possibility
of an outflow of resources embodying economic benefits. Contingent assets are not recognized in the consolidated financial statements
but are disclosed when an inflow of economic benefits is probable (Note 7) . (v)
Accounting for Financial Instruments :
The principal financial assets of the Partnership consist of cash
and cash equivalents, restricted cash, amounts due from related parties and trade accounts receivable. The principal financial liabilities
of the Partnership consist of trade and other accounts payable, accrued liabilities, long-term debt, amounts due to related parties and
a derivative financial instrument (interest rate swap). The Partnership may also consider, from time to time, entering into interest
rate swap agreements to manage its exposure to fluctuations of interest rate risk associated with its borrowings. Derivative financial
instruments are generally used to manage risk related to fluctuations of interest rates. ASC 815, “Derivatives and Hedging”,
requires all derivative contracts to be recorded at fair value, as determined in accordance with ASC 820, Fair Value Measurements and
Disclosures (Note 6). The changes in fair value of a derivative contract are recognized in earnings unless specific hedging criteria
are met. At the inception of a hedge relationship, the Partnership formally designates and documents the hedge relationship with respect
to hedge accounting, the risk management objective and the strategy undertaken for the hedge. The documentation includes identification
of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting exposure to changes in the hedged item’s cash flows attributable to the hedged risk.
A cash flow hedge is the mitigation of risk exposure resulting from variability in cash flows attributable to a particular risk associated
with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss. Such hedges are expected
to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually
have been highly effective throughout the financial reporting periods for which they were designated. All derivatives are recorded on
the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as cash flow hedges, the effective
portion of the changes in fair value of the derivatives is recorded in “Accumulated Other Comprehensive Income/ (Loss)” and
subsequently recognized in earnings when the hedged items impact earnings. (w)
Derivative Financial Instruments :
The Partnership entered into an interest rate swap contract to
manage its exposure to fluctuations of interest rate risks associated with its loan facility. The interest rate swap did not meet the
applicable criteria for hedge accounting under ASC 815, including the criteria specific to a cash flow hedge, therefore the interest
rate swap represents an economic hedge. As a result, interest paid or received under the respective undesignated swap agreement is recognized
in Gain/ (Loss) on derivative financial instrument (Note 11). The undesignated interest rate swap is recognized in the consolidated financial
statements at its fair value, and the gain or loss from changes in the fair value are reported in earnings in the period in which those
fair value changes occur in Gain/ (Loss) on derivative financial instrument and any related cash settlements are classified under financing
activities in the statement of cash flows. 2.
Significant Accounting Policies and Recent Accounting Pronouncements (continued): (x) Going
concern The
Partnership’s policy is in accordance with ASU No. 2014-15, "Presentation of Financial Statements - Going Concern", issued
in August 2014 by the FASB. ASU 2014-15 provides U.S. GAAP guidance on management’s responsibility in evaluating whether there
is substantial doubt about an entity’s ability to continue as a going concern and on related required footnote disclosures. For
each reporting period, management is required to evaluate whether there are conditions or events that raise substantial doubt about a
company’s ability to continue as a going concern within one year from the date the consolidated financial statements are issued. Recent
Accounting Pronouncements Not Yet Adopted In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions
affected by reference rate reform. ASU 2020-04 applies to contracts that reference LIBOR or another reference rate expected to be terminated
because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments in
this Update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply
to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result
of reference rate reform. Amendments in this Update to the expedients and exceptions in Topic 848 capture the incremental consequences
of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments
in this Update apply to all entities that elect to apply the optional guidance in Topic 848. ASU 2020-04 and ASU 2021-10 can be adopted
as of March 12, 2020 through December 31, 2022. As of December 31, 2021, the Partnership has not made any contract modifications to replace
the reference rate in any of its agreements and has not evaluated the effects of this standard on its consolidated financial position,
results of operations, and cash flows. The Partnership is the process of evaluating the impact this guidance may have on its consolidated
financial statements and related disclosures . In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus
of the FASB Emerging Issues Task Force). The ASU addresses the diversity in practice in an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after modification
or exchange. Under the guidance, an issuer determines the accounting for the modification or exchange based on whether the transaction
was done to issue equity, to issue or modify debt or for other reasons. The ASU is effective for all entities for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but entities need to apply
the guidance as of the beginning of the fiscal year that includes the interim period in which they choose to early adopt the guidance.
The guidance is applied prospectively to all modifications or exchanges that occur on or after the date of adoption. The Partnership
is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures . In
July 2021, the FASB issued ASU No. 2021-05 Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments. The ASU amends the
lessor lease classification guidance in ASC 842 for leases that include any amount of variable lease payments that are not based on an
index or rate. If
such a lease meets the criteria in ASC 842-10-25-2 through 25-3 for classification as either a sales-type or direct financing lease,
and application of the sales-type or direct financing lease recognition guidance would result in recognition of a selling loss, then
the amendments require the lessor to classify the lease as an operating lease. For public business entities that have adopted ASC 842
as of July 19, 2021, the amendments in ASU 2021-05 are effective for fiscal years beginning after Dec 15, 2021 and for interim periods
within those fiscal years. The Partnership is currently evaluating the impact this guidance may have on its consolidated financial statements
and related disclosures . |
