CASE WRITE-UPS
This is Chris Gilmore’s first week working as an accountant at Ruckman, Inc.

The controller of the corporation, Martha Green, selected Chris from numerous qualified candidates, in part because he had learned International Financial Reporting Standards (IFRS) while earning hisMaster of Accountancy degree. Chris’s responsibilities, as described during the interview process, include reviewing the financial statements of the company’s foreign subsidiaries, preparing the consolidated financial statements, and assisting the corporation in converting its financial statements from accounting principles generally accepted in the United States of America (U.S. GAAP) to International Financial Reporting Standards for reporting to its European stakeholders. Chris has spent the early part of the week familiarizing himself with the company’s operations, as well as its accounting policies and practices. This morning, Martha has a new project for Chris to work on.

Martha: Chris, as you know, the company is intending to prepare its 2011 financial statements in accordance with IFRS. We realize this will be a time-consuming process, and would like to get started as soon as possible.

Chris: That sounds like a great idea. I remember my professors mentioning that companies must begin the conversion process several years before the financial statements will be issued in order to be certain they gather the necessary information. For example, preparation of the 2011 financial statements will require a beginning balance sheet as of December 31, 2009 and public companies need to begin even earlier to present the three years of balance sheets required by the SEC.

Martha: That’s exactly what I would like you to begin working on. I brought you a copy of our 2009 financial statements as well as our summary of significant accounting policies from the notes to the financial statements. I would like you to perform a preliminary assessment of our conversion requirements. Identify the areas where our U.S. GAAP accounting methods must be modified to conform to IFRS. In some areas, you may not have sufficient information to come to a conclusion. Make a separate list of the areas for which adjustment may be required, and list the additional information you need to make a final determination.

Chris: I will start work on that today. When would you like this completed?

Martha: Why don’t you submit your lists to me next week? We can discuss your findings, and make any necessary adjustments. Then we can begin gathering any additional information you need to convert the 2009 financial statements to IFRS.

After Martha left, Chris developed his strategy for completing the assignment. Chris decided to review the financial statements for differences in presentation between IFRS and U.S. GAAP, and then analyze each section of the footnotes for accounting methods that represent departures from IFRS. He expects to find issues to consider for most, if not all, of the accounting areas described in the footnotes as well as some changes in presentation.

Phase: I Requirements:

1. Review the company’s financial statements (Tables 1, 2, 3, and 4 ) and summary of significant accounting policies (Exhibit 1). Prepare a list of accounting areas for which sufficient information has been provided to determine that conversion is required. Include differences in presentation as well as accounting methods. For each item, list any additional information Chris will need to obtain to complete the conversion.

2. Prepare a list of accounting areas for which adjustment may be necessary, but insufficient information was provided to make an accurate assessment. List the specific information Chris will require in order to conduct further analysis.

PHASE II

Martha was pleased by Chris’s preliminary assessment of areas in which the Ruckman, Inc. U.S. GAAP financial statements may require adjustment to conform to IFRS. She distributed

TABLE 1
Consolidated Income Statement
Ruckman, Inc.
Year ended December 31, 2009 (in $ thousands)
Revenues $191,685
Cost of sales 120,638
Gross profit 71,047
Selling expenses 16,370
General and administration expenses 18,077
Research and development costs 15,317
Other operating income 8,293
Other operating expenses 1,135
Total expenses 59,192
Operating result 11,855
Interest income 235
Other income 756
Interest expense (56 )
Net income from ordinary activities before tax 12,790
Income tax 789
Net income from ordinary activities 12,001
Extraordinary expense 2,872
Net income for the year $9,129

 

Chris’s list throughout the company in order to gather the requested information. Several weeks later, Martha entered Chris’s office to check on the status of the project.

Martha: Well Chris, how is the IFRS conversion project coming along? Have you received all of the information you requested?

Chris: The inventory manager dropped off her information this morning and I have just begun working on conversion of the financial statements.

Martha: I’m glad to hear it. For the first draft of the financial statements, don’t worry about calculating the tax effect of each adjustment. We’ll review your conversion entries with our tax advisor to consider the full impact of the proposed changes. And now I’ll let you get to work. I look forward to seeing the results.

 

Phase II Requirements

1. Use the additional information Chris gathered (Exhibit 2) to prepare a list of journal entries converting Ruckman, Inc.’s U.S. GAAP financial statements to IFRS.

2. Record your conversion entries and make any necessary changes to present Ruckman Inc.’s balance sheet and income statement in accordance with IFRS for the year ended December 31, 2009. To save you time, the company’s U.S. GAAP financial statements are available from your instructor in an Excel spreadsheet. Consider the following items when preparing the IFRS financial statements:

Assets

TABLE 2
Consolidated Balance Sheet Ruckman, Inc. December 31, 2009
(in $ thousands)

Cash and cash equivalents $71,943
Accounts receivable 33,490
Inventories 45,095
Available-for-sale securities 9,025
Deferred tax assets 59
Other current assets 4,831

Total current assets 164,443

Property, plant and equipment 35,119
Investment property 4,908
Deferred tax assets 4,773
Goodwill 14,747
Other intangible assets 11,160
Other non-current assets 747

Total non-current assets 71,454
Total assets $235,897

Liabilities and shareholders’ equity
Short-term debt

$1,251
Accounts payable 23,761
Accrued income taxes 254
Other accrued liabilities 2,820
Other current liabilities 4,878
Deferred revenues 24,877
Total current liabilities 57,841

Debt
10,103
Other non-current liabilities 16,475
Total non-current liabilities 26,578
Total liabilities 84,419

Common stock: 29,713,000 shares issued and outstanding
29,713
Additional paid in capital 71,228
Retained earnings 52,906
Accumulated other comprehensive loss (2,369)
Total equity 151,478
Total liabilities and shareholders’ equity $235,897

TABLE 3
Statement of Cash Flows
Ruckman, Inc.
Year ended December 31, 2009 (in $ thousands)
Cash flow from operating activities
Net income for the year
Reconciliation between net income and cash flows from operating activities
Impairment expense $9,129

2,872
Depreciation and amortization 7,844
Deferred income taxes
Other changes in
Asset accounts 232

(27,777 )
Liability accounts 29,006
Cash flow provided by operating activities 21,306

Cash flow from investing activities
Capital expenditures in property, plant, and equipment

(2,181)
Capital expenditures in intangible assets (184)
Cash flow used for investing activities (2,365)

Cash flow from financing activities
Issuance of convertible bonds

4,000
Cash flow provided by financing activities 4,000

Effect of changes of exchange rates on cash and cash equivalents
(390)
Net change in cash and cash equivalents 22,551
Cash and cash equivalents at the beginning of the period 49,392
Cash and cash equivalents at the end of the period $71,943

Supplemental disclosure of cash flow information:
Interest paid

(42)
Interest received 253
Income taxes paid (923)
a. Presentation of deferred taxes
b. Appropriate terminology for equity accounts

EXHIBIT 1: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General Principles

Ruckman, Inc. is a diversified technology company with a global presence in two businesses. It is a provider of equipment and services to the semiconductor and compound-semiconductor industry, as well as a provider of paper and pulp products worldwide. The consolidated financial

TABLE 4
Consolidated Statement of Changes In Equity
Ruckman, Inc.
Year ended December 31, 2009 (in $ thousands)

Common
Stock

Additional
Paid-In-Capital

Accumulated Other Comprehensive Income/Loss

Retained
Earnings

Total
Equity

Balance at January 1, 2009 $29,713 $71,228 $(1,991) $43,777 $142,727
Net income for the period 9,129 9,129
Currency translation (48) (48) Unrealized investment gains 393 393
Actuarial losses (723) (723)

Balance at December 31, 2009 $29,713 $71,228 $(2,369) $52,906 $151,478

 

 

statements include the accounts of Ruckman, Inc. and its wholly owned subsidiaries (‘‘Ruckman’’ or the ‘‘Company’’). Intercompany profits, transactions, and balances have been eliminated in consolidation.

2. Significant Accounting Policies
(a) Basis of Accounting

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reported period. Actual results may differ from these estimates.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by each consolidated company.

(b) Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, current deposits with credit institutions, and short-term notes with a remaining maturity of three months or less at the date of acquisition. The basis of measurement is nominal value.

(c) Accounts Receivable and Other Receivables

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. It maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, and such losses have been within management’s expectations.
The Company assesses the customer’s ability to pay based on a number of factors, includ- ing its past transaction history with the customer and creditworthiness of the customer.

Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in the Company’s customer payment terms when evaluating the adequacy of the allowances for doubtful accounts. If the financial condition of the customers were to deteriorate in the future, resulting in an impairment of their ability to make payments, then additional allowances may be required. Uncollectible accounts receivable are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted, and recoveries are recognized when they are received.

(d) Inventories

(i ) Valuation. Inventories are stated at the lower of cost and market. Cost of raw materials is determined using the first-in first-out method. For the semiconductor segment, cost of work in process, as well as manufactured finished goods is determined for specifically identifiable assets. Certain finished goods are purchased for resale in relation to semiconductor repair services. Cost of these purchased finished goods is determined using the last-in first-out method. For the paper goods segment, cost of work in process, as well as finished goods, is presented using the first-in first-out method.
The cost includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of work in progress and finished goods, cost includes direct material and production cost, as well as an appropriate share of overheads based on normal operating capacity.
(ii ) Impairment. Allowance for slow moving, excess and obsolete, and otherwise unsaleable
inventory is recorded based primarily on either the Company’s estimated forecast of product demand and production requirement for the next 12 months or historical trailing 12 month usage. When there has been no usage of an inventory item during a period of 12 months, the Company writes down such inventories based on previous experience.
During the year ended December 31, 2008, the Company recognized revenues of approximately $1.7 million from sales of inventory that had been previously considered excess or obsolete and written-off. Consequently, there was no cost of revenues recognized in connection with these product sales in 2008.

(e) Property, Plant, and Equipment

(i ) Acquisition or Manufacturing Cost. Items of property, plant, and equipment are stated at cost, less accumulated depreciation and impairment losses (see below). Costs of internally generated assets include not only costs of material and personnel, but also a share of overhead costs. Interest is expensed as incurred.
Timber and timberlands are recorded at cost, and reforestation cost is capitalized, less depletion for the cost of timber harvested. Depletion is computed by the units-of-production method.
(ii ) Subsequent Costs. The Company capitalizes improvements to property, plant, and equipment
when it is probable that future economic benefits will flow to the Company. Repairs and maintenance are expensed as incurred.
(iii ) Depreciation. Depreciation is charged on a straight-line basis over the estimated useful lives
of property, plant, and equipment. The estimated useful lives are as follows:

• Buildings 40 years
• Machinery and equipment 10–20 years
• Other plant, factory and office equipment 3–8 years

(iv) Impairment. Property, plant, and equipment are tested for impairment when there is any indication that the asset may be impaired. Impairment losses on such assets are recognized if carrying amount exceeds the sum of expected future cash flows, to the extent that the carrying amount exceeds the fair value.

(f ) Intangible Assets

(i ) Goodwill. Goodwill is the excess of the purchase price over the fair value of net assets of acquired businesses. Goodwill is stated at cost less any accumulated impairment loss. Goodwill is allocated to reporting units and is tested annually for impairment (see below).
(ii ) Research and Development. Expenditure on research activities, undertaken with the prospect
of gaining new technical knowledge and understanding scientific methods, is recognized as an expense as incurred.
Expenditure on development, comprising costs incurred with the purpose of using scientific knowledge technically and commercially, is expensed as incurred.
(iii ) Other Intangible Assets. Other intangible assets that are acquired by the Company are stated at
cost less accumulated amortization and impairment losses (see below). Expenditure on internally generated goodwill, trademarks, and patents is expensed as incurred.
(iv) Subsequent Expenditure. Subsequent expenditure on capitalized intangible assets is
capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
(v) Amortization. Amortization is charged on a straight-line basis over the estimated useful lives
of intangible assets, except for goodwill. Goodwill is tested at least annually in respect of its recoverable amount. Other intangible assets are amortized from the date they are available for use. The estimated useful lives are as follows:

• Software 2–3 years
• Patents and similar rights 5–20 years
• Customer base and product and technology know-how 6–7 years

(vi ) Impairment. Goodwill and other intangible assets are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Goodwill is tested separately for each reporting unit in the fourth quarter of each fiscal year. The first step of the test identifies if potential impairment may have occurred, while the second step measures the amount of the impairment, if any. Impairment is recognized when the carrying amount of the asset exceeds the fair value. To date, no impairment losses for goodwill have been recognized. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.

(g) Contingencies

The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. SFAS No. 5, Accounting for Contingencies, requires that an estimated loss from a loss contingency such as a legal proceeding or claim should be accrued by a charge to income if it is probable that an asset has been impaired or disclosure is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. When a range of estimates is considered equally likely, the lowest estimate is accrued on the balance sheet. Changes in these factors (degree of probability or the ability to estimate) could materially impact our financial position or our results of operations.

(h) Debt

Debt consists of bank borrowings, convertible bonds, and bank overdrafts. Management considers bank overdrafts an integral part of Ruckman’s cash management policy. The Company classifies borrowings due within 12 months of the balance sheet date as long-term when a refinancing agreement is obtained prior to the date of the report.
Convertible bonds that can be converted to common stock at the option of the holder, where the number of shares issued does not vary with changes in their fair value, are recorded as liabilities. The interest expense recognized in the income statement is calculated using the effective interest rate method.

(i ) Earnings per Share

Basic earnings per share, as disclosed in the notes to the financial statements, are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if convertible bonds were converted, unless such conversion had an anti-dilutive effect.

( j) Investments

Investments include equity securities classified as available-for-sale. Investments in listed securities are measured at fair value. Unlisted equity securities are carried at cost.

(k) Revenue

Our revenues consist of product sales, which primarily include sales of semiconductor and compound-semiconductor equipment, replacement parts, paper and pulp products, and, to a lesser extent, services and training related to the semiconductor industry.
The sales of our semiconductor and compound-semiconductor equipment generally include installation services. We determined these elements qualify as one unit of accounting under Emerging Issues Task Force Bulletin No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), as we do not have evidence of fair value for the undelivered installation elements.
Furthermore, we determined that the undelivered installation elements are perfunctory performance obligations and are not essential to the functionality of our semiconductor equipment. Therefore, in accordance with the provisions of Staff Accounting Bulletin No. 104, we recognize revenue when the revenue recognition criteria are met for the semiconductor equipment, and accrue the costs of providing the installation services. We recognize semiconductor equipment revenue at one of following three points, depending on the terms of our arrangement with our customer: (1) shipment of the semiconductor equipment, (2) delivery of the semiconductor equipment, or (3) receipt of an acceptance certificate. For the majority of our semiconductor equipment sales, the shipping terms are F.O.B. shipping point and revenue is recognized upon shipment. For our arrangements that include F.O.B. destination shipping terms, revenue is recognized upon delivery of the semiconductor equipment to our customer. Last, one of our arrangements includes an acceptance provision, which is satisfied by the issuance of an acceptance certificate by the customer. For these transactions, we recognize revenue upon receipt of the acceptance certificate. In addition, we test our semiconductor equipment in environments similar to those used by our customers prior to shipment to ensure that they meet published specifications.
Revenue from replacement parts, paper, and pulp sales is recognized at the point that legal title passes to the customer, which is generally upon shipment from our facility.

For our service contracts, revenue is generally recognized straight-line over the term of the contract. To date, service and training revenue has been less than 10 percent of our total revenue.

(l) Expenses

(i ) Cost of Sales. Cost of sales includes such direct costs as materials, labor, and related production overheads
(ii ) Research and Development. Research and development costs are expensed as incurred

(m) Deferred Tax

Deferred tax assets and liabilities are recorded for all temporary differences between tax and financial balance sheets and for losses brought forward for tax purposes as well as for tax credits of the companies included in consolidation. The deferred taxes are calculated based on tax rates applicable at the balance sheet date. Effects of changes in tax rates on the deferred tax assets and liabilities are recognized upon adoption of the amended law.

(n) Employee Benefits

(i ) Defined Contribution Plans. Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred.
(ii ) Defined Benefit Plans. The obligation from defined benefit plans is calculated by estimating the
amount of future benefit that employees have earned in return for their service in prior periods; that benefit is discounted to determine its present value. The calculation is performed by a qualified actuary using the projected unit credit method.
The assets and liabilities of the pension and postretirement medical benefit plans are affected by changing market conditions as well as differences between assumed and actual plan experience. Such events result in gains and losses. Investment gains and losses are deferred and recognized in pension and postretirement medical benefit costs over a period of years. If, as of the annual measurement date, the plan’s unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets, then the excess is amortized over the average remaining service period of active plan participants. This 10 percent corridor method helps to mitigate volatility of net periodic benefit costs from year to year.

(o) Operating Leases

Payments made under operating leases are recognized as expense on a straight-line basis over the term of the lease.

( p) Cash Flow Statement

The cash flow statement is prepared using the indirect method. Cash inflows and cash outflows from taxes and interest are included in cash flows from operating activities.

EXHIBIT 2: SUPPLEMENTAL INFORMATION PROVIDED FOR PHASE II

a. Extraordinary Loss

The Company carries comprehensive liability, fire, extended coverage, and rental loss insurance for each of its properties. There are, however, certain types of extraordinary losses, such as losses for terrorism or earthquake, for which the Company does not have insurance coverage. The $2.872 million extraordinary loss reported for the year represents earthquake damage incurred
TABLE 5
Activity of Inventory for Semiconductor Repair Parts
Purchases

Month Units Unit Cost Total Units Sold
Jan-08 1,000 $80.00 $80,000 200
Feb-08 500 $82.00 $41,000 500
Mar-08 500 $85.00 $42,500 600
Apr-08 500 $85.00 $42,500 500
May-08 3,500 $85.00 $297,500 3,000
Jun-08 2,500 $87.00 $217,500 2,500
Jul-08 3,500 $88.00 $308,000 3,500
Aug-08 3,800 $89.00 $338,200 3,250
Sep-08 3,500 $92.00 $322,000 3,000
Oct-08 3,500 $91.00 $318,500 3,500
Nov-08 4,000 $90.00 $360,000 3,400
Dec-08 4,000 $95.00 $380,000 3,800
Jan-09 4,000 $100.00 $400,000 3,500
Feb-09 4,250 $102.00 $433,500 825
Mar-09 4,250 $103.00 $437,750 4,200
Apr-09 4,100 $105.00 $430,500 4,050
May-09 4,230 $110.00 $465,300 4,150
Jun-09 4,250 $112.00 $476,000 4,000
Jul-09 2,500 $115.00 $287,500 4,100
Aug-09 2,500 $116.00 $290,000 4,150
Sep-09 4,250 $118.00 $501,500 4,125
Oct-09 4,600 $118.00 $542,800 4,150
Nov-09 4,700 $120.00 $564,000 4,200
Dec-09 4,200 $121.00 $508,200 4,150

at the California facility during August 2009. The Company classifies depreciation for the
California facility with general and administrative expenses.

b. Inventory

The CFO has elected to use the first-in first-out method for costing finished goods acquired for resale in the semiconductor segment for IFRS financial statements. The Company has developed strong relationships with suppliers, and purchases substantially all of these repair parts on demand.
The Company maintains stock on the most commonly used item, and records periodic activity for
TABLE 6
Impairment of Semiconductor Finished Goods
Unit #1 Unit #2 Total

Cost $750,000 $1,230,000 $1,980,000
Fair value 38,000 198,000 236,000
Impairment $712,000 $1,032,000 $1,744,000

accounting purposes. Table 5 provides the activity information Chris obtained to calculate the inventory adjustment for the only item on hand at year-end for 2008 or 2009. The Company had no units on hand at December 31, 2007.
In 2008, the Company recorded impairment on two units of finished goods manufactured for the semiconductor segment. These units were custom manufactured for a specific customer that filed for bankruptcy before taking possession of the goods. As of December 31, 2008, the Company had no customers with similar needs and believed the fair value of the equipment was equal to the value of salvaged parts. The Company recorded impairment of $1,744,000, calculated as shown in Table 6.
In December 2009 the Company obtained a $1.1 million order from a new customer, with specifications similar to Unit #2. Management estimates the cost of modifying Unit #2 to meet the new specifications is $87,500. The modified unit is scheduled for completion and delivery in the first quarter of 2010.

c. Timber

IFRS requires that biological assets be disclosed on the face of the financial statements, and carried at fair value with changes in value recorded in the income statement. The Company’s forest assets, in the form of standing trees, were valued at $1.3 million at both December 31, 2008 and 2009.

d. Depreciation

Table 7 is a summary of property, plant, and equipment as presented on the December 31, 2009
U.S. GAAP balance sheet. Management of the Company has determined that buildings are comprised of the components listed below, along with their estimated useful lives:

• Building shell (site preparation, foundation, steel frame, exterior construction, floor structure, exterior walls, roof structure)—40 years
• Roof, floor, and interior construction—20 years
• Electric, heating, ventilation, AC, plumbing, fire protection, elevators—23 years
• Fixed equipment—10, 15 or 20 years
• Information technology (IT) infrastructure—10 years

The Company operates facilities at three locations:

• Facility constructed in Virginia, with operations beginning January 1, 2000
• Facility purchased in England on January 1, 2001
• Facility purchased in California on July 1, 2001

A summary of cost by component and location has been provided to Chris (see Table 8).
TABLE 7
Property, Plant and Equipment per U.S. GAAP Balance Sheet

Cost Depreciation and Impairment
Land and buildings $31,095 $11,412
Timber $1,282 $1,009
Technical equipment and machinery $30,247 $16,918
Other plant, factory, and office equipment $9,338 $7,504
Total $71,962 $36,843

TABLE 8
Identifiable Components of Land and Buildings by Location
Component Virginia England California Total

Land $855 $234 $281 $1,370
Building shell $15,002 $1,408 $4,624 $21,034
Roof and interior construction $2,522 $758 $1,105 $4,385
Electric, ventilation, etc. $1,768 $550 $547 $2,865
Fixed equipment—20 years $419 $196 $148 $763
Fixed equipment—15 years $75 $52 $33 $160
Fixed equipment—10 years $186 $69 $40 $295
IT infrastructure $124 $48 $51 $223
Total Land and Buildings $20,951 $3,315 $6,829 $31,095
e. Impairment

On December 31, 2009, after recording depreciation expense for the month, the Company tested its California facility for impairment due to damage from an earthquake. The Company determined that damage was isolated to the building shell. Based on the recoverability tests, no impairment was recorded. The Company gathered the following information to conduct the recoverability test: net selling price of $3.315 million, expected future cash flows of $7.424 million, and discounted expected future cash flows of $3.595 million.
Accumulated depreciation and impairment also includes $1.231 million impairment for the Virginia building shell and $0.2 million impairment for the Virginia land recorded in 2008. The Virginia impairment was calculated using the fair value of the assets ($855 thousand for the land and $15.002 million for the building shell), which exceeded the discounted future net cash flows ($800 thousand for the land and $14.9 million for the building shell). There has been no change in estimated fair value since the impairment was recorded. The Company classifies depreciation for the California and Virginia facilities with general and administrative expenses.

f. Intangible Assets

Engineers in the paper and pulp segment have patented a process that results in high-yield, high- quality fibrous raw materials that, used to augment existing wood fiber resources, reduces cost of production while increasing quality of the finished goods. On October 31, 2008 the board of directors approved the 2009 budget, including adequate resources for development of the process. On July 1,
2009 the engineers established feasibility of the process, estimating a $2.5 million annual savings in

TABLE 9
Expenditures Related to Patent

 

Costs

Development cost, Nov–Dec 2008 $230,000
Development cost, Jan–Jun 2009 $840,000
Development cost, July–Nov 2009 $935,000
Legal fees—patent $50,000