3. Allowance for credit losses:

The Partnership’s allowance for credit losses are as follows (in thousands):


		Accounts Receivable Allowance for Doubtful Accounts				Valuation Adjustments on Financing Receivables		Total Allowance for Credit Losses
		Finance Leases		Operating Leases		Finance Leases
Balance December 31, 2011	$	10	$	1	$	-	$	11
(Reversal of provision) provision		(10)		132		-		122
Balance December 31, 2012		-		133		-		133
Provision		-		194		-		194
Balance June 30, 2013	$	-	$	327	$	-	$	327

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts which are currently due to the Partnership.

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.

Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease payments outstanding less than 90 days. Based upon management’s judgment, such leases may be placed in non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.

Financing receivables

In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on direct financing leases.

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly.

3. Allowance for credit losses (continued):

As of June 30, 2013 and December 31, 2012, the Partnership did not record an allowance for credit losses related to its financing receivables. The Partnership’s recorded investment in financing receivables at June 30, 2013 and December 31, 2012 are as follows (in thousands):


June 30, 2013		Finance Leases		Total
Allowance for credit losses:
Ending balance	$	-	$	-
Ending balance: individually evaluated for impairment	$	-	$	-
Ending balance: collectively evaluated for impairment	$	-	$	-
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-

Financing receivables:
Ending balance	$	65	$	65
Ending balance: individually evaluated for impairment	$	65	$	65
Ending balance: collectively evaluated for impairment	$	-	$	-
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-

December 31, 2012		Finance Leases		Total
Allowance for credit losses:
Ending balance	$	-	$	-
Ending balance: individually evaluated for impairment	$	-	$	-
Ending balance: collectively evaluated for impairment	$	-	$	-
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-

Financing receivables:
Ending balance	$	197	$	197
Ending balance: individually evaluated for impairment	$	197	$	197
Ending balance: collectively evaluated for impairment	$	-	$	-
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-

The Partnership evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the General Partner to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the General Partner and the account is not considered by the Chief Credit Officer of the General Partner to fall into one of the three risk profiles below.

Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

3. Allowance for credit losses (continued):

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the General Partner’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the General Partner’s Credit Watch List, and has been declared in default and the General Partner has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired leases as applicable.

At June 30, 2013 and December 31, 2012, the Partnership’s financing receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):


		Finance Leases
		June 30, 2013		December 31, 2012
Pass	$	65	$	197
Special mention		-		-
Substandard		-		-
Doubtful		-		-
Total	$	65	$	197

At June 30, 2013 and December 31, 2012, investment in financing receivables is aged as follows (in thousands):


June 30, 2013		31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing
Finance leases	$	-	$	10	$	-	$	10	$	55	$	65	$	-


December 31, 2012		31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing
Finance leases	$	-	$	-	$	-	$	-	$	197	$	197	$	-

The Partnership did not carry an impairment reserve on its financing receivables at June 30, 2013 and December 31, 2012. At June 30, 2013 and December 31, 2012, there were no investments in financing receivables with related accounts receivable past due more than 90 days which were still on an accrual basis.