Discovery Value Accounting

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.

BREAKING DOWN '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 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. Investing Basics

    Free Cash Flow Yield: A Fundamental Indicator

    Free cash flow can measure a business’s performance as if you’re looking at its net income line.
  7. Economics

    4 Countries Pleading for Higher Commodity Prices

    Discover what countries are struggling the most from the price collapse in commodities and what these countries require to return to economic growth.
  8. Stock Analysis

    Glencore Vs. Noble Group

    Read about the differences between Glencore and Noble Group, two companies in the commodities business. Learn about accounting accusations facing Noble Group.
  9. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  10. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center