Tag Archives | asset

Unclaimed Property

See Also:
Flat Tax Rates
Marginal Tax Rate
Prepaid Income Tax
Tax Brackets
Deferred Income Tax

Unclaimed Property Definition

The unclaimed property definition is any funds, or asset, that is unclaimed by the rightful owner. A common example of unclaimed property is the unredeemed value of gift cards and gift certificates. Other typical examples include the following:

  • Outstanding checks that have not been reissued
  • Dormant bank accounts, unclaimed security deposits
  • Uncashed dividend checks
  • Unidentified remittances

State Departments of Revenue see unclaimed property as a revenue source: an alternative to higher state tax rates to generate additional revenue. State laws mandate the reversion of such property to the rightful state, after a presumed period of abandonment. This creates a compliance exposure for many commercial enterprises. Consider the reversion indebtedness, and is subject to unclaimed property tax laws in multi-state jurisdictions.

Some large companies are turning over millions of dollars to the states, even though they have tried to locate and give back the unclaimed funds to the rightful owner. Other companies are paying because they have never filed an unclaimed property tax report or even tried to pay back unclaimed funds.

Unclaimed property tax audits used to occur maybe once every fifteen to twenty years. But the frequency has escalated to every one to three years. With no statute of limitations on unclaimed property, a state’s window of opportunity is unlimited.

unclaimed property definition

0

Scrap Value

See Also:
Adjusted Present Value (APV)
Asset Market Value vs Asset Book Value
Future Value
Going Concern Value
Customer Analysis

Scrap Value Definition

The scrap value definition, also known as salvage value, is the value of an asset after it is fully depreciated. Once an asset reaches the point where it is fully depreciated, has lost the vast majority of production efficiency due to use, and is ready to be resold, it has reached the scrap value. At this point, managers must make the decision of whether to sell the asset for it’s material, or recyclable value, continue using it despite the fact that it is no longer in good operating condition, or trash the asset.

Scrap Value Explanation

Scrap value, explained as the value an asset has on the open market after it has surpassed it’s useful lifetime, is very important in the eyes of accountants and CFO’s. Because financial planners in a company deal closely with assets and their depreciation schedules, they are the main monitoring body which decides when a piece of equipment has reached it’s scrap value in accounting. These financial managers, working with GAAP and any government requirements placed upon them, decide the amount of use an item can take before it becomes useless. With this they decide how much of this use happens per year, known as depreciation, and when a piece of equipment can no longer be used.

Final Scrap Value

Once an item reaches it’s final scrap value, accounting professionals see several available options. First, the item can be sold to another company which can still make use of the asset, despite the less-than-optimal condition it is in. This depends on the chosen depreciation schedule and whether the item can still operate, in some ways, as designed.

Second, the item can be sold for it’s value in raw materials. For example, a large printing press can be sold for it’s metal content to a recycling facility after it is no longer able to be used for printing purposes. Though this item will be sold for a relatively small amount of money it will still create some value for the company.

Third, the item can be trashed if it has no real scrap value. In this scenario, the item has such little value that it creates more cost in resale than it does when thrown away. An example of this would be an old computer: the man hours spent to resell the computer often outweigh the income gained from selling it.

Only material assets have a scrap value. To simplify, if an asset does not depreciate it does not have a scrap value. For example, this scrap value wiki will never depreciate and thus has no scrap value in accounting.

Scrap Value Calculation

There is no simple method for scrap value calculation. More, scrap value is a result of market factors. On one hand, one must figure out the market value for an almost useless asset. This will provide the scrap value if it is sold for use.

On the other hand, one must also figure out the total value of the raw materials contained in the asset. This will lead to the value of the asset if it is recycled.

Whichever of these values is greater will become the scrap value for the asset. The reasoning behind this is simple: company controllers will, obviously, choose to sell the item for more rather than less money.

Scrap Value Example

For example, Leo is the head accountant at a company which prints marketing messages on common items: hats, cups, silverware, and other items designed to attract attention for a business when they are used. Leo likes his work because it allows him to bring value to his company through the decisions and analysis he performs.

Then, Leo, performing his monthly tasks, notices that one of the company assets is nearing the end of it’s depreciation schedule. Once it reaches the end of this schedule it will be at scrap value. Leo, the ever-active analyst, must make the decision of how to gain maximum value from the scrapped piece of equipment.

Leo notices that he recorded a market value for the scrapped piece of equipment in recycling. He notes this value as he moves forward with his work. Leo explores other options before he makes a decision.

Leo does a bit of networking and finds a potential buyer for the scrapped printer which is nearing the end of it’s lifetime. This buyer, knowing that the item will not be able to perform some of the functions it was originally designed for, is willing to offer $5,000.

Next, Leo talks with a decision maker at a local scrap metal company. The item is found to have $2,500 in value for the metal it is made of. The scrap metal company, however, can not pick up the item. It will have to be shipped to their headquarters. This salvage value is less than Leo initially found. He attributes this difference to changes in the market value for metals.

Calculate Total Cost

Leo calculates the total cost for his company to sell the item. What he finds is shocking. The company will gain more monetary value from trashing the item than it will selling it. The math is simple: disassembling and shipping the item to his buyer will cost $5,015. Though his company only saves $15, Leo knows that “a penny saved is a penny earned”.

Conversely, to disassemble and ship the large printer to the scrap metal company will be slightly less than this. This, combined with the negotiating time spent at the scrap metal company will result in a loss of $5. Once again, Leo will make the prudent financial decision even if it is a small one.

Leo completes his decision. He is happy that he did the proper research. His work results in a greater company value than if he had not. Leo loves his work for this very reason: he can make a difference in the lives of the company employees and shareholders.

Don’t leave any value on the table! Download the Top 10 Destroyers of Value whitepaper.

scrap value, Scrap Value Definition, Scrap Value Calculation, Scrap Value Example

Strategic CFO Lab Member Extra

Access your Exit Strategy Execution Plan in SCFO Lab. This tool enables you to maximize potential value before you exit.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

scrap value, Scrap Value Definition, Scrap Value Calculation, Scrap Value Example

0

Return on Asset

See Also:
Financial Ratios
Internal Rate of Return Method
Net Present Value Method
Net Present Value vs Internal Rate of Return
Required Rate of Return
What The CEO Wants You to Know

Return on Asset Definition

Return on asset (ROA) reveals how much profit a company earned in comparison to its overall asset. The value of ROA varies from industry and company. In general, the higher the value, the better a company is.

Return on Asset Formula

Return on Asset = Net income ÷ Average asset

Or = Net profit margin * Asset turnover

Return on Asset Calculation

Example: a company has $2,000 in net income, and $20,000 in average asset. Return on equity = 2,000 / 20,000 = 10%

This means that has $0.1 of net income for every dollar of asset invested.

Applications

Return on assets measures profit against the assets a company used to generate revenue. It is an important indicator of the asset intensity of a company. A lower ratio means a company is more asset-intensive, and vice versa. Additionally, a more asset-intensive company needs more money to continue generating revenue. Return on asset ratio is useful for investors to assess a company’s financial strength and efficiency to use resources. It is also very important for management to measure its performance against its planned business goals, or market competitors.

If you want to increase the value of your organization, then click here to download the Know Your Economics Worksheet.

return on asset

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

return on asset

Resources

For statistical information about industry financial ratios, please go to the following websites: www.bizstats.com and www.valueline.com.

0

Replacement Costs

See Also:
Sunk Costs
Asset Market Value vs Asset Book Value
Accelerated Method of Depreciation
Straight Line Depreciation
Double Declining Method of Depreciation

Replacement Costs Definition

In accounting, the replacement costs definition is the current market price a company would have to pay to replace an existing asset. This is in contrast to book value. Book value is the historic purchase price of the asset, less accumulated depreciation.

Replacement Costs Example

Let’s look at a replacement costs example. If a company bought a machine for $1,000 five years ago, and the value of the asset today, less depreciation, is $300 dollars, then the book value of the asset is $300. However, the cost to replace that machine at current market prices may be $1,500. Therefore, the replacement cost would be significantly higher than the book value.

Similarly, if the company bought a quantity of steel for $10,000 a year ago, and the price of steel subsequently sky-rocketed, then the replacement cost for that same amount of steel could be $15,000, or whatever the current market price of steel dictates for the given quantity.

Check out our free Internal Analysis whitepaper to assist your leadership decisions as your enhance your strengths and resolve your weaknesses.

Replacement Costs, Replacement Costs Example,Replacement Costs Definition
Strategic CFO Lab Member Extra
Access your Exit Strategy Checklist Execution Plan in SCFO Lab. The step-by-step plan to put together your exit strategy and maximize the amount of value you get.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Replacement Costs, Replacement Costs Example,Replacement Costs Definition

0

Modified Accelerated Cost Recovery System (MACRS)

See Also:
Straight Line Depreciation
Double Declining Depreciation Method
Accelerated Method of Depreciation
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles

Modified Accelerated Cost Recovery System Definition

The modified accelerated cost recovery system (MACRS) method of depreciation assigns specific types of assets to categories with distinct accelerated depreciation schedules. Furthermore, MACRS is required by the IRS for tax reporting but is not approved by GAAP for external reporting.

MACRS Depreciation Calculation

To calculate depreciation for an asset using MACRS, first determine the asset’s classification. Then use the table (below) to find the appropriate depreciation schedule.

When using MACRS, an asset does not have any salvage value. This is because the asset is always depreciated down to zero as the sum of the depreciation rates for each category always adds up to 100%. When calculating depreciation expense for MACRS, always use the original purchase price of the asset as the depreciable base for each period. Note that you depreciate each category for one year longer than its classification period. For example, depreciate an asset classified under 3-Year MACRS for 4 years. Then depreciate an asset classified under 5-Year MACRS for 6 years, and so on.

(NOTE: Want to take your financial leadership to the next level? Download the 7 Habits of Highly Effective CFO’s. It walks you through steps to accelerate your career in becoming a leader in your company. Get it here!)

MACRS Example

For example, an asset purchased for $100,000 that falls into the 3-Year MACRS category shown below, would be depreciated as follows:

YearDepreciation Rate     Depreciation Expense
  1     33.33%         $33,330     (33.33% x $100,000)
  2     44.45%         $44,450     (44.45% x $100,000)
  3     14.81%         $14,810     (14.81% x $100,000)
  4      7.41%          $7,410     (7.41%   x $100,000)

MACRS Depreciation Table

Below is the table for Half-Year Convention MACRS for 3, 5, 7, 10, 15, and 20 year depreciation schedules.

Depreciation Rates (%)

Year    3-Year    5-Year   7-Year   10-Year  15-Year  20-Year 

  1     33.33     20       14.29    10       5        3.75
  2     44.45     32       24.49    18       9.5      7.219
  3     14.81     19.2     17.49    14.4     8.55     6.677
  4      7.41     11.52    12.49    11.52    7.7      6.177
  5               11.52     8.93     9.22    6.93     5.713
  6                5.76     8.92     7.37    6.23     5.285
  7                         8.93     6.55    5.9      4.888
  8                         4.46     6.55    5.9      4.522
  9                                  6.56    5.91     4.462
 10                                  6.55    5.9      4.461
 11                                  3.28    5.91     4.462
 12                                          5.9      4.461
 13                                          5.91     4.462
 14                                          5.9      4.461
 15                                          5.91     4.462
 16                                          2.95     4.461
 17                                                   4.462
 18                                                   4.461
 19                                                   4.462
 20                                                   4.461
 21                                                   2.231

Dealing with the IRS is one of the many responsibilities a financial leader has. Download the free 7 Habits of Highly Effective CFOs to find out how you can become a more valuable financial leader.

Modified Accelerated Cost Recovery System

Modified Accelerated Cost Recovery System

MACRS and the IRS

For more detailed information regarding MACRS, go to: irs.gov/publications

3

Notes Receivable

See Also:
Notes Payable
Treasury Notes (t notes)
Accounts Receivable
How to collect accounts receivable
Balance Sheet

Notes Receivable Definition

The notes receivable is an account on the balance sheet usually under the current assets section if its life is less than a year. Specifically, a note receivable is a written promise to receive money at a future date. The money is usually made up of interest and principal.

Notes Receivable Explained

A note receivable is often formed when a business, usually a bank, makes a loan to another business. A note will often be for less than a year, but some can be well in excess of this time frame. Recognize notes receivable income as interest income on the income statement. Thus, when payment is made the amounts effect the balance sheet as well as the income statement.

Notes Receivable Example

Money Bank is extending a $100,000 90 day note to Toys Inc. so that they can fund some of its short term needs for financing during the year. The note has an interest rate of 5% and is recorded by the bank as a note receivable on Money’s balance sheet under the current assets section. At the end of the term, Toys inc. will pay the $100,000 in principal back to Money Bank, and approximately $1,233 (100,000 * 90/365 * .05) worth of interest. Record the amount as interest income on the incomes statement at the end of the year.

If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.

Notes Receivable

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Notes Receivable

1

Long Term Debt to Total Asset Ratio Analysis

See Also:
Long Term Debt to Total Asset Example
Financial Ratios
Debt to Equity Ratio
Debt Service Coverage Ratio (DSCR)
Operating Cycle Analysis
Standard Chart of Accounts
Equity Multiplier

Long Term Debt to Total Asset Ratio Analysis Definition

The Long Term Debt to total asset ratio analysis defined, at the simplest form, an indication of what portion of a company’s total assets is financed from long term debt. The value varies from industry and company. Comparing the ratio with industry peers is a better benchmark.

Long Term Debt to Total Asset Ratio Explanation

Long term debt to total asset ratio explained a measure of the extent to which a company is using long term debt. It is an indicator of the long-term solvency of a company. The higher the level of long term debt, the more important it is for a company to have positive revenue and steady cash flow. It is very helpful for management to check its debt structure and determine its debt capacity.

Long Term Debt to Total Asset Ratio Formula

The formula for the Long Term Debt to Total Asset Ratio is as follows:

Long debt to total asset ratio = long term debt / total assets

Long Term Debt to Total Asset Ratio Calculation

Simply by divide long term debt from total assets to calculate long term debt to total asset ratio. It is an easy equation once the proper data is known.

For example, a company has $10,000 in total assets, and $5,000 in long term debt. Refer to the following calculation:

Long debt to total asset ratio = 5,000 / 10,000 = 0.5

In conclusion, the company has $0.5 in long term debt for every dollar of assets.

Resources

If you want more statistical information about industry financial ratios, then please click the following website: www.bizstats.comand www.valueline.com.

long term debt to total asset ratio analysis

0

LEARN THE ART OF THE CFO