Discovery Value Accounting

AAA

DEFINITION of 'Discovery Value Accounting'

A method of accounting often used in the oil and gas, mining and other explorative industries. Discovery value accounting is used to account for any increases in reserves (oil, gas, etc.) which would lead to an increase in assets and potentially earnings on a company's financial statements. This accounting method allows for companies in these industries to more easily adjust financial statements to account for such changes in thier extractable assets.

INVESTOPEDIA EXPLAINS 'Discovery Value Accounting'

A primary issue with discovery value accounting is in valuing newly discovered reserves, since discount rates for commodities are difficult to estimate, along with the uncertainty of exactly how much of the new reserves can actually be extracted and ultimately produced. Also, when adjustments are made to a company's financial statements under discover value accounting methods, supplemental financial statements will be required to illustrate any changes to assets, earnings, discount rates and all other changes that are required.


Discovery value accounting is also often referred to as reserve recognition accounting.

RELATED TERMS
  1. Accounting Convention

    Guidelines that arise from the practical application of accounting ...
  2. Oil Price to Natural Gas Ratio

    A mathematical ratio comparing the prices of crude oil and natural ...
  3. Oil Field

    A tract of land used for extracting petroleum, or crude oil, ...
  4. Primary Reserves

    The minimum amount of cash required to operate a bank. Primary ...
  5. Contemporaneous Reserves

    A form of bank reserve accounting that requires a bank to maintain ...
  6. Proved Reserves

    A classification used in mining sectors that refers to the amount ...
RELATED FAQS
  1. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  2. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  3. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  4. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
  5. What exactly does EBITDA margin tell investors about a company?

    EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBITDA margins provide investors a snapshot ... Read Full Answer >>
  6. How can you use a cash flow statement to make a budget?

    To use the cash flow statement to make a budget, a company needs to combine the operating cash flow portion of its cash flow ... Read Full Answer >>
Related Articles
  1. Economics

    Peak Oil: What To Do When The Wells Run Dry

    Find out how to invest and protect your investments in this slippery sector.
  2. Active Trading

    Oil And Gas Industry Primer

    Before jumping into this hot sector, learn how these companies make their money.
  3. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  4. Options & Futures

    Peak Oil: Problems And Possibilities

    Learn a little more about the "non" part of this nonrenewable resource.
  5. Active Trading

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  6. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  7. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  8. Investing Basics

    Explaining the Spot Rate

    The spot rate is the immediate purchase price posted on exchanges for purchasing commodities, currency and securities.
  9. Chart Advisor

    Bullish Traders Are Turning To Rare Earth Metals

    Companies that explore and or process rare metals are of specific interest to traders because of strong moves in a couple of the sector’s key players.
  10. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center