| 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 and nine month periods ended September 30, 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 related payroll, payroll taxes and employee benefits 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 employee related 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 for the three and nine months ended September 30, 2016 by $871,838 and $2,500,159, respectively, 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 for the three and nine months ended September 30, 2016 by $107,042 and $334,731, respectively, and correspondingly increased Managed property expenses to reclassify 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 $334,731 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 $334,731 previously written off and the subsequent collection of the same amount. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Proceeds from notes receivable to Cash Flows from Operating Activities from the Cash Flows from Financing Activities. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Distribution from equity method investment from Cash Flows from Investing Activities to Cash Flows from Operating Activities. 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 ASU 2014 09, Revenue from Contracts with Customers (Topic 606) (ASU 2014 09). The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (i) remove inconsistencies and weaknesses in revenue requirements; (ii) provide a more robust framework for addressing revenue issues; (iii) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (iv) provide more useful information to users of financial statements through improved disclosure requirements; and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB amended the FASB Accounting Standards Codification (Codification) and created a new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance in ASU 2014 09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the Codification. Additionally, ASU 2014 09 supersedes some cost guidance included in Subtopic 605 35, Revenue RecognitionConstruction Type and Production Type Contracts. The ASU is effective for fiscal years beginning after December 15, 2017 (and interim periods within that period). In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASUs clarifying items within Topic 606, as follows: In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers by one year the effective date of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The amendments in ASU 2016-08 serve to clarify the implementation guidance on principal vs. agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The purpose of ASU 2016-10 is to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas). In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, noncash consideration and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain aspects of the Boards new revenue standard, ASU 2014-09. This ASU addresses thirteen specific issues pertaining to Topic 606, Revenue from Contracts with Customers. We are currently in the process of completing our evaluation of ASU 2014-09, including identifying the potential differences in the timing and/or method of revenue recognition for our contracts and, ultimately, the expected impact on our business processes, systems and controls. As part of this evaluation, we are reviewing customer contracts and applying the new standard to each contact type identified thats associated to our material revenue streams and will compare the results to our current accounting practices. We currently expect that the timing and amount of recognition of incentive fee revenue from some of our contracts will be impacted by adopting the new standard. Our current recognition of revenue is that the incentive fees are recorded when earned, however, some contracts are goal based (no incentive fees are earned until a target operating profit is returned to the property owner), resulting in the incentive fees historically being recorded in the last half of the year. The Company is exploring the timing of when these incentive fees will be recorded during the year under the new standard. We continue to evaluate any other potential effects of adopting this standard. Consequently, given the complexities of this new standard, we are unable to determine, at this time, whether adoption of this standard will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures. We will adopt this standard, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on January 1, 2018. A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our qualitative evaluation is complete and we commence quantifying the expected impacts. 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 $713,521 of operating lease obligations as of September 30, 2017 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 comprehensive 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. results of operations. 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, the Company will follow the guidance in this standard for the goodwill impairment testing. |
