| Summary of Significant Accounting Policies | Note 1 Summary of Significant Accounting Policies Organization The Castle Group, Inc. was incorporated under the laws of the State of Utah on August 21, 1981. The Castle Group, Inc. operates in the hotel and resort management industry in the State of Hawaii, New Zealand, and the Commonwealth of Saipan under the trade name Castle Resorts and Hotels. The accounting and reporting policies of The Castle Group, Inc. conform with accounting principles generally accepted in the United States of America (GAAP) and to practices accepted within the hotel and resort management industry. Principles of Consolidation The consolidated financial statements include the accounts of The Castle Group, Inc. and its wholly-owned subsidiaries: Hawaii Reservations Center Corp., HPR Advertising, Inc., Castle Resorts & Hotels, Inc., Castle Resorts & Hotels Thailand Ltd., NZ Castle Resorts and Hotels Limited (a New Zealand Corporation), NZ Castle Resorts and Hotels wholly-owned subsidiary, Mocles Holdings Limited (a New Zealand Corporation), Castle Resorts & Hotels NZ Ltd., Castle Group LLC (Guam), Castle Resorts & Hotels Guam Inc. and KRI Inc. dba Hawaiian Pacific Resorts (Interactive). Collectively, all of the companies above are referred to as the Company throughout these consolidated financial statements and accompanying notes. All significant inter-company transactions have been eliminated in the consolidated financial statements. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation. The results of operations for the three month periods ended March 31, 2017, are not necessarily indicative of the results for a full-year period as the tourism industry that the Company relies on is highly seasonal. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Castles most recent Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 7, 2017. The Companys significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016. Revenue Recognition In accordance with ASC 605: Revenue Recognition Specifically, the Company recognizes revenue from the management of resort properties according to terms of its various management contracts, which fall under two basic types of agreements, a Gross Contract and a Net Contract. Under a Gross Contract the Company records revenue which is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. The Company pays a portion of the gross rental proceeds to the owner of the rental unit and only records as revenue the difference between the gross rental proceeds and the amount paid to the owner of the rental unit. Under the Gross Contract, the Company is responsible for all of the operating expenses for the hotel or condominium unit and the Company records the expenses of operating the rental program at the property covered by the agreement. These expenses include housekeeping, food and beverage, maintenance, front desk, sales and marketing, advertising and all other operating costs at the property covered by the agreement. Under a Net Contract, the Company receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. Under the Net Contract, the owner of the hotel or condominium unit is responsible for all of the operating expenses of the rental program covering the owners unit and the Company also typically receives an incentive management fee, which is based on the net operating profit of the covered property. Additionally the Company employs on-site personnel to provide services such as housekeeping, maintenance and administration to property owners under the Companys management agreements and for such services the Company recognizes revenue in an amount equal to the employee expenses incurred. Under both types of agreements, revenues are recognized after services have been rendered. A liability is recognized for any deposits received for which services have not yet been rendered for properties managed under a Gross Contract. Under a Net Contract, the Company does not record the operating expenses of the property covered by the agreement, other than the personnel costs mentioned in the previous paragraph. The difference between the Gross and Net Contracts is that under a Gross Contract, all expenses, and therefore the ownership of any profits or the covering of any operating loss, belong to and is the responsibility of the Company; under a Net Contract, all expenses, and therefore the ownership or any profits or the covering of any operating loss belong to and is the responsibility of the owner of the property. Reclassifications The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of 2016 results, the company combined previously reported Revenue attributed from properties and Management and service revenue into a new revenue line Managed property revenue to better reflect the revenues that the Company receives from its properties under management, and to also match those revenues with the direct costs associated with Managed property revenue. For the presentation of 2016 results, the Company combined previously reported Attributed property expenses and Payroll and office expenses into a new expense line Managed property expense to better reflect the direct operating costs associated with the Managed property revenue. Management feels that combining the two costs into one expense line item better reflects the direct operating costs associated with the Managed property revenue. For presentation of 2016 results, the Company increased Administrative and general expenses by $830,053 and correspondingly reduced Managed property expense to reclassify the payroll and other operating costs of our centralized corporate offices as these costs are more of an overhead nature than a variable cost associated with fluctuations in Managed property revenue. For presentation of 2016 results, the Company reduced Administrative and general expenses by $118,617 and increased Attributed property and management departmental expenses by $118,617. This is a result of a reclassification of the recovery of amounts previously written off as bad debts. For presentation of the 2016 Statement of Cash Flows, the Company increased the Notes receivable collection by $118,617 and added a line Recovery of bad debt to show an offsetting decrease in Cash flows from operating activities to account for the reversal of $118,617 previously written off and the subsequent collection of the same amount. Note 2 New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Companys financial statements upon adoption. In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. We are in the early stages of evaluating the effect of the standard on our financial statements, upon adoption our financial statements will include expanded disclosures related to contracts with customers, we are continuing our assessment of other impacts on our financial statements at this time. We are still assessing our method of adoption. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has $954,692 of operating lease obligations as of December 31, 2016 and upon adoption of this standard it will record a ROU asset and lease liability for present value of these leases which will have a material impact on the balance sheet. However, the statement of income recognition of lease expenses is not expected to change from the current methodology. In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The objective of this update is to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods and is to be applied utilizing a retrospective approach. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the reporting units carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019. Upon adoption, we will follow the guidance in this standard for the goodwill impairment testing. |
