History of Education Essays

History of Education Essays History of Education Essay History of Education Essay Education began in the earliest prehistory, as adults trained the young in the knowledge and skills deemed necessary in their society. In pre-literate societies this was achieved orally and through imitation. Story-telling passed knowledge, values, and skills from one generation to the next. As cultures began to extend their knowledge beyond skills that could be readily learned through imitation, formal education developed. Schools existed in Egypt at the time of the Middle Kingdom. Matteo Ricci (left) and Xu Guangqi (right) in the Chinese edition of Euclid’s Elements published in 1607 Plato founded the Academy in Athens, the first institution of higher learning in Europe. The city of Alexandria in Egypt, established in 330 BCE, became the successor to Athens as the intellectual cradle of Ancient Greece. There, mathematician Euclid and anatomist Herophilus constructed the great Library of Alexandria and translated the Hebrew Bible into Greek. European civilizations suffered a collapse of literacy and organization following the fall of Rome in AD 476. In China, Confucius (551-479 BCE), of the State of Lu, was the country’s most influential ancient philosopher, whose educational outlook continues to influence the societies of China and neighbors like Korea, Japan and Vietnam. Confucius gathered disciples and searched in vain for a ruler who would adopt his ideals for good governance, but his Analects were written down by followers and have continued to influence education in East Asia into the modern era. After the Fall of Rome, the Catholic Church became the sole preserver of literate scholarship in Western Europe. The church established cathedral schools in the Early Middle Ages as centers of advanced education. Some of these establishments ultimately evolved into medieval universities and forebears of many of Europe’s modern universities. During the High Middle Ages, Chartres Cathedral operated the famous and influential Chartres Cathedral School. The medieval universities of Western Christendom were well-integrated across all of Western Europe, encouraged freedom of inquiry, and produced a great variety of fine scholars and natural philosophers, including Thomas Aquinas of the University of Naples, Robert Grosseteste of the University of Oxford, an early expositor of a systematic method of scientific experimentation, and Saint Albert the Great, a pioneer of biological field research. The University of Bologne is considered the oldest continually operating university. Elsewhere during the Middle Ages, Islamic science and mathematics flourished under the Islamic caliphate which was established across the Middle East, extending from the Iberian Peninsula in the west to the Indus in the east and to the Almoravid Dynasty and Mali Empire in the south.

Organizing Your Genealogy Files

Organizing Your Genealogy Files Piles of copies of old records, printouts from genealogy websites, and letters from fellow genealogy researchers are sitting in piles on the desk, in boxes, and even on the floor. Some are even mixed in with bills and your childrens school papers. Your papers may not be completely disorganized if youre asked for something specific, you can probably find it, but it definitely isnt a filing system that you would describe as efficient. Believe it or not, the solution is as simple as finding an organizational system that suits your needs and research habits and then making it work. It might not be as simple as it sounds, but it is doable and will ultimately help to keep you from spinning your wheels and duplicating research. Which Filing System is Best Ask a group of genealogists how they organize their files, and youre likely to get as many different answers as genealogists. There are a number of popular genealogy organization systems, including binders, notebooks, files, etc., but there truly is no individual system which is best or correct. We all think and behave differently, so ultimately the most important consideration in setting up your filing system is that it must fit your personal style. The best organization system is always the one that you will use. Taming the Paper Monster As your genealogy project progresses youll find that you have numerous paper documents to file for each individual that you research birth records, census records, newspaper articles, wills, correspondence with fellow researchers, Web site printouts, etc. The trick is to develop a filing system that will enable to easily lay your fingers on any of these documents at any time. Commonly used genealogical filing systems include: By Surname:  All papers for an individual surname are filed together.By Couple or Family:  All papers related to a husband and wife or family unit are filed together.By Family Line:  All papers related to a specific family line are filed together. Many genealogists begin by starting with four such ancestral lines one for each of their grandparents.By Event:  All papers related to a specific event type (i.e. birth, marriage, census, etc.) are filed together. Beginning with any of the four systems mentioned above, you could then further organize your papers into the following categories: By Location:  Papers are first grouped by one of the four genealogy filing systems listed above, and then further broken down by country, state, county, or town to reflect your ancestors migration. For example, if you chose the Surname Method, you would first group all CRISP ancestors together, and then further break the piles down into the England CRISPs, the North Carolina CRISPs, and the Tennessee CRISPs.By Record Type:  Papers are first grouped by one of the four genealogy filing systems listed above, and then further broken down by record type (i.e. birth records, census records, wills, etc.). Binders, Folders, Notebooks, or Computer The first step to starting an organizational system is to decide on the basic physical form for your filing (piles dont count!)   file folders, notebooks, binders, or computer disks. Filing Cabinet and File Folders:  File folders, probably the most popular organizational tool for genealogists, are inexpensive, very portable, and easily hold papers of different shapes and sizes. When dropped, however, file folders can become quite a mess with papers thrown out of order, and possibly misplaced. File folders make it easy to consult documents, but you have to be diligent about making sure the paper is put back where it came from. Once youve generated a lot of paper, however, the file folder system is the most flexible and expandable.Binders:  If youre someone who really likes to keep things together in one place, then organizing your printed genealogy data into binders may be a good option for you. This method standardizes your genealogical records into a regular size paper format. Documents that you dont wish to three-hole punch, can be added in polypropylene sleeves. Binders are portable and dont require a filing cabinet, however, if you do a lot of genealogic al research you may find that binders eventually become too cumbersome on their own.​ Computer Disks, CDs, and DVDs:  Transcribing  or scanning genealogical documents into the computer can save quite a bit of space, and computerized organizational systems can greatly speed up tedious tasks such as sorting and cross-referencing. CD-ROM quality has also greatly improved, supposedly lasting indefinitely under proper storage conditions. But, will your descendants 100 or more years from now have a computer that can read them? If you choose to use your computer as your primary organizational system, consider also making and preserving copies or printouts of important documents. Once you get started organizing your genealogical clutter, youll probably find that a combination of storage methods works best. Some people, for example, use binders to organize proven family and file folders for miscellaneous research on unproven connections, neighborhood or locality research, and correspondence. It is important to keep in mind that organization is and always will be a work in progress. Organizing Your Genealogy Using File Folders To set up and use file folders to organize your genealogy records you will need the following basic supplies: A filing cabinet or file boxes with lids. The boxes need to be strong, preferably plastic, with horizontal inner ridges or grooves for letter-size hanging files.Colored, letter-size hanging file folders  in blue, green, red, and yellow. Look for ones with large tabs. You can also save a bit of money here by purchasing standard green hanging file-folders instead and using colored labels for the color-coding.Manila folders. These should have slightly smaller tabs than the hanging file folders and should have reinforced tops to last through heavy use.Pens. For best results, use a pen with an ultra fine point, felt tip, and black, permanent, acid-free ink.Highlighters. Buy highlighters in light blue, light green, yellow, and pink (dont use red because it is too dark). Colored pencils also work.Labels for file folders. These labels should have blue, green, red and yellow strips along the top and permanent adhesive on the back. Once youve assembled your supplies, its time to get started with the file folders. Use different colored file folders for the lineages of each of your four grandparents in other words, all folders created for the ancestors of one grandparent will be marked with the same color. The colors you select are up to you, but the following color choices are the most common: BLUE - ancestors of your paternal grandfather (fathers father)GREEN - ancestors of your paternal grandmother (fathers mother)RED - ancestors of your maternal grandfather (mothers father)YELLOW - ancestors of your maternal grandmother (mothers mother) Using the colors as outlined above, create a separate folder for each surname, writing names on the hanging file tab insert with the black permanent marker (or printing inserts on your printer). Then hang the files in alphabetical order in your file box or cabinet by color (i.e. put the blues alphabetically in one group, the greens in another group, etc.). If youre new to genealogy research, this may be all you need to do. If you have accumulated a lot of notes and photocopies, however, it is now time to subdivide. Here is where you need to choose how you want to organize your files. The two most popular methods as discussed on page 1 of this article are: by  Surname  (further broken down as needed by Locality and/or Record Type)by  Couple or Family Group The basic filing instructions are the same for each, the difference is primarily in how they are organized. If you arent sure yet which method will work best for you, try using the Surname method for one surname and the Family Group method for one or two families. See which one suits you best, or develop your own combination of the two. Family Group Method Create a family group sheet for each married couple listed on your pedigree chart. Then set up manila folders for each of the families by putting a colored label on the file folder tab. Match the label color to the color of the appropriate family line. On each label, write the names of the couple (using the  maiden name  for the wife) and the numbers from your  pedigree chart  (most pedigree charts use the  ahnentafel numbering system). Example: James OWENS and Mary CRISP, 4/5. Then place these manila family folders in the hanging folders for the appropriate surname and color, arranged in alphabetical order by the husbands first name or in numerical order by the numbers from your pedigree chart. In the front of each manila folder, attach the family group record of the family to serve as a table of contents. If there was more than one marriage, make a separate folder with a family group record for each other marriage. Each family folder should include all documents and notes from the time of a couples marriage. Documents which pertain to events prior to their marriage should be filed in the folders of their parents, such as birth certificates and family census records. Surname and Record Type Method First, sort your files by surname, and then create manila folders for each of the record types for which you have paperwork by putting a colored label on the file folder tab, matching the label color to the surname. On each label, write the name of the surname, followed by the record type. Example: CRISP: Census, CRISP: Land Records. Then place these manila family folders in the hanging folders for the appropriate surname and color, arranged in alphabetical order by the type of record. In the front of each manila folder, create and attach a table of contents that indexes the contents of the folder. Then add all documents and notes which correspond to the surname and type of record.

Case Study analysis (Operations Management) Essay

Case Study analysis (Operations Management) - Essay Example This paper provides answers to two questions from the Bruynzeel Keukens: Mastering Complexity case study. After reading the case study my recommendation for the company is to redesign its supply chain. The problems start with the company’s logistics. There is poor synchronization between up and downstream supply chains. Supplier lead time is twice as long as the optimal point needed to achieve efficiency. Bruynzeel Keukens has communication issues between the sales department and the inventory warehouse department. The company has problems keeping adequate inventory levels. Due to an inability to adequately estimate the demand for retail kitchen customer the enterprise keeps high inventory levels. All the problems the company faces with its supply chain is hurting the ability of the company to satisfy the customer needs. This can lead to lower customer retention rates. Companies that are unable to master their supply chain suffer from operating inefficiencies that hurt their profitability. Despite the fact the company currently holds an industry leading 23% market share the limit ations of the company’s supply chain are a risk factor that can cause the business to lose market share points. Bruynzeel Keukens must implement changes in its supply chain practices in order to become a more flexible and efficient enterprise. A simple solution that can help minimize the bottlenecks and complexities of the system is reducing the kitchen combination alternatives by 50%. The firm would still offer 20 million potential combination of product variety which is still very impressive. In reality having such a high product variety does not add any value to the business. This simple solution will reduce the firm’s inventory costs. Another solution that can help the supply chain system is adaption of just-in-time (JIT) inventory system for the retail kitchen business segment. It would take between three to six months to switch to

Skin Cancer Essay Example | Topics and Well Written Essays - 500 words - 1

Skin Cancer - Essay Example Skin cancer is a term used to defined carcinomas which rise from the skin and can invade different parts of the body. These include squamous cell cancer, melanoma and basal cell cancer. A culmination of factors have led to an increase in the prevalence of skin cancer and these include damage to the ozone layer by industrial activity and the new methods that have been created for tanning such as tan salons or even spending excessive amounts of time under the sun (Zhang et al., 1588-1593). There should be studies that are aimed towards the regulation of events that are damaging to the ozone layer and the different methods that are used to improving tanning in the community to ensure that these methods are either eliminated or minimized. Tanning has become a summer fashion and many people use tanning salons which predisposes them to many types of skin cancer. However, many studies have found that spending long hours under these lamps predisposes individuals to squamous cell cancer which is one of the deadliest forms of skin cancer. Tanning beds are machines that utilize 3% UVB and 97% UVA to artificially produce sun tans for cosmetic purposes (Dore et al., 30-37). There are many different variants of these machines and can also be in the form of high pressure beds. The cultural history of tanning is something that has changed throughout the years and in the early 1900s when the benefits of sunlight were documented, sun bathing can back into fashion and was considered an upper class activity (Dore et al., 30-37). It was further popularized by Coco Chanel 1920s after a vacation. The tanning beds entered the American community in 1979. However, the World Health Organization and other health institutions have labeled these beds a health risk and have included it among other dangerous radiation substances such as plutonium. According to

The Brutal Realities of War Expressed in Poetry Essay Example for Free

The Brutal Realities of War Expressed in Poetry Essay The poet’s confronts a very poetic perception of life and death by which he incorporated a very distinct mood in his poetry. He particularly engrosses himself to make a point of comparison between the life of those free animals and the soldiers. The speaker is English soldier, perhaps Isaac Rosenberg himself. The poetry has a touch of humor from the speaker’s observation towards the rat and the poppy in the first half of the poem. A rat in the trenches has caught the poet’s eye. He was amused with the fact that this animal is equally at home and comfortable to leap in both German and British trenches. ‘Now you have touched this English hand/ You will do the same to a German’ (Line 9-10) that says that the rat can freely pass between the English and German lines and is more likely to survive than those strong soldiers. In war, the soldiers’ life is of little value compared to the insects and animals roaming around. The speaker assumed that the rat as it passes both the German and English trenches wonders of what is happening to human beings specially of those soldiers who have ‘Strong eyes, fine limbs†¦Ã¢â‚¬â„¢ and those ‘haughty athletes,’ (Line 14). The Rear-Guard by Siegfried Sassoon The Rear Guard gives a realistic approach of the experience of being in war through a soldier’s perspective. The poem is a piece of description that concentrates towards the horror of war. It aims to give information regarding the realities of war from a soldier who descends from Hell. The poet in this masterpiece uses figurative language to convey war’s horror, complexities and confusion. In the fourth and fifth line ‘Tins, boxes, bottles, shapes to vague to know/ A mirror smashed, the mattress from a bed’, the writer provides many figurative objects to illustrate the busy and confused nature of war. The following lines illustrate the painful agony of the soldiers. The ‘Unloading hell behind him step by step’, mentioned in the last line says that on earth through war there is also hell, that even after war the ending point is still hell in eternity. Strange Meeting by Wilfred Owen The narrator of this poem is a soldier found himself in hell. Throughout the poetry, he is conversing with another soldier who distinguished himself as the narrator’s enemy, ‘I am the enemy you killed, my friend. / I knew you in this dark: for you frowned/ Yesterday through me as you jabbed and killed’ (Line 36-39). The narrator refers to the other soldier as a ‘Strange friend†¦Ã¢â‚¬â„¢ (Line 14) which means both were from opposing parties and therefore were strangers to each other. But in hell, they were able to call themselves friends by which they can freely reveal their emotions and thoughts without fear. What common theme is present in all three of these poems and what common message do the poems convey? War is often associated with the physical imagery of violence and political conflict. History itself says that the intentions of war trail into the purpose of acquiring a greater power in terms of position, territory, resources, rights and rewards. Conflict of interest in any form if it will not be settled diplomatically may result to violence and hostility. There is always a participation of military and soldiers to show and define who the stronger party is. Soldiers as land forces play an important role in providing honor and success in one political party. Soldiers with their capability, bravery, sense of commitment and the things they carry defines a group’s strength. Since there is always an involvement of armed conflict between military forces, non participant of warfare which means those who are not engage in the actual combat simply perceive war as brutal and fierce, a battle of life and death that ends either in victory or lost. When the war ends, they perceive that everything is over. However for those who experience it, there is a greater battle that not everybody understands. To truly define war, it is significant to acquire the perspective of those who are mostly affected and those who are mostly involve. The three poems apparently illustrate the brutal realities of war especially for those participants. The writers of the poems were literally participants of war or combat. They show war ugly truths which are often in contrast to the ideas of glory, courage and heroism associated with war. War is ambiguous and illogical because it forces human beings into extreme situations that give no choice in the process. Both the narrator of the â€Å"Strange Meeting† and â€Å"The Rear-Guard† poetry found themselves in Hell which suggests that war not only destroys physical life and property nor ruin the psychological aspects of those participants, but war steals one’s opportunity to possibly experience eternal life in heaven. The fact that both narrators indulge Hell in their poetry demonstrates their belief in religion. In war, there is always a distorted line about religious concept of humanity and duty. The concept of right and wrong, guilt and emotions does not matter in the middle of combat because what matters most is personal survival. The brutalities of war are not so much about the glory and victory of the political party the soldiers’ represent but it is more on personal survival. How does the text of each manifest that message and what significance does this message hold about war in general? The three poetry used powerful language and figures of speech to make a point of comparison. For example, the used of Hell as the main setting of the poem ‘Strange Meeting’ and ‘The Rear-Guard’ suggest that war is man’s product of wickedness. ‘Break of Day in the Trenches’ on the other hand used animals as a powerful imagery to illustrate that man’s life in the middle of combat is of little value compared to any other living animals or insects that enjoy freedom. War in this poetry suggests that those participants in combat have no choice but to fight for their survival. They are prison literally. The poets also used powerful language to evoke the reader’s emotions. The used of ambiguity, irony, wits and symbolism leave the poems the possibility of multiple interpretation. The emotions however are almost common which makes the poems more realistic. In these poems, it can be realized that to really know the real concept of war, one must relate and accumulate the truths from experience of those soldiers. They are the one who can completely and truly define the irrationality and irony of war. Reference: Rosenberg, Isaac (1916). Break of Day in the Trenches. Harrison and Stuart Clark (Ed. ) Peace and War (p. 102). Berlin. (Reprinted from New York, 1989, Oxford University Press) Sasoon, Siegfried (1918). The Rear Guard. Parini (Ed. ). The Wadsworth Anthology of Poetry (p. 1126). Canada. (Reprinted from Canada, 2005, Thomson Wadsworth). Owen, Wilfred (1920). Strange Meeting. Parini (Ed. ). The Wadsworth Anthology of Poetry (p. 776). Canada. (Reprinted from Canada, 2005, Thomson Wadsworth).

Working At Starbucks Essay -- Personal Narrative Job essays

I was making a grande vanilla bean frappiccino while other customers were waiting in line to have their order taken. Business was slow that day, but heck, everyday at my job was a slow one. I would think to myself, Why the hell am I still working here? when this place gets no business at all. Of course, I work at Starbucks, not the ones that you see on the corner of the streets, but I worked at the one in Target. At my Starbucks, we would have one person working each shift. We had three shifts per day, the opening shift, the midday, and the closing shift. With all my luck I got to either open the store, or close the store. I really didn’t like opening or closing, but I said to myself, money is money, and I can’t go wrong with making money. Another thing that bothered me about my job was the money. My starting salary was only $6.50 per hour, while other Starbucks salaries started at $8.00 an hour. I didn’t apply anywhere else, so I guess I was stuck with the job I had for now. It was the first Monday of the week, and I had to open with my boss Tenesha. She was my boss at Starbucks, but had the same duties as everyone else that worked at Starbucks. On Mondays, we usually had a rush of customers, rushing to get a hot cup of coffee for the road to work, or just morning moms wanting our new brew of coffee for the week. But Tenesha had inventory that week, so I was stuck making coffee all day till Andrew, another employee came in around 1 p.m. It was around 10:00 a.m., ju...

Fixed Assets

Accounting for Fixed Assets Accounting for Fixed Assets Second Edition Raymond H. Peterson John Wiley & Sons, Inc. Copyright  © 2002 by John Wiley and Sons, Inc. , New York. All rights reserved.No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744.Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc. , 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY. COM. This publication is designed to provide accurate and authori tative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services.If legal advice or other expert assistance is required, the services of a competent professional person should be sought. This title is also available in print as ISBN 0-471-09210-X. Some content that appears in the print version of this book may not be available in this electronic edition. For more information about Wiley products, visit our web site at www. Wiley. com To a number of people who influenced my life and prepared me for the job of creating this book: First, my mother, who not only taught me to read, but allowed me to experience the enjoyment of reading.She opened up for me the vast knowledge available in libraries. Dr. Wade Moorehouse, retired Professor of Accounting and former Chairman of the Department of Business and Economics at California State University, Hayward, who many ye ars ago, when I was an undergraduate student in his accounting course, stimulated my excitement about the accounting function. Blessed with classes of fewer than six students in a new university, we spent many class hours discussing the theory of accounting.These discussions had a large impact on my career direction. Earl Malone, a District Accounting Manager, who early in my career forced me to develop my own thoughts and not just rely on past practice. He also forced me to aquire the skill of dictation, which made the creation of this book a possibility. Dodie Peterson, world’s best secretary, who converted my ramblings into a manuscript. Contents About the Author Preface Chapter 1 What Is Accounting for Fixed Assets?Introduction Consumption of Benefits Characteristics of Assets Need to Change Chapter 2 What Is an Asset? Introduction Historical Cost Matching Principle Fixed Assets Property Plant Equipment Defining Assets Government Accounting User Fees Not-for-Profit Accoun ting xv xvii 1 1 3 4 9 11 11 12 13 14 16 17 18 20 22 24 24 vii viii Contents Chapter 3 Classifications of Asset Transactions Introduction Classification Systems Accounting Policy Decisions Coding of Transactions Property Record Coding System 7 27 28 31 33 34 39 39 39 40 44 47 48 49 49 52 52 54 54 55 55 56 57 58 58 59 59 Chapter 4 Determining Base Unit Introduction Definition of Base Unit Purpose of a Base Unit Establishing Base Units Decision Rules Difficulties in Establishment Land Buildings Equipment Criteria for Establishing Base Units Examples Spare Parts Chapter 5 Control of Property, Plant, and Equipment Introduction Asset Accountant Asset Custodian Inventories Property Record System Identification of Assets Farm Owner Applied Numbers Contents ixIdentification of Specific Asset Items to Be Tagged Bar Coded Tags Security Chapter 6 Asset Policies Manual Introduction Purpose Creating the Manual Partial Sample Manual Use of the Manual Property, Plant, and Equipment Custodianâ€⠄¢s Responsibilities Responsibilities of Asset Accountant Procedures for Purchase of Physical Assets Approval Limits Minimum Capitalization Level Items Always Charged to Expense Account Transaction Reports Data Definitions Chapter 7 Establishing Value Introduction Historical Cost Other Values Uses of Values Insurance Collateral for a Loan Purchase or Sale of a Complete Business First Creation of Property Record 0 61 64 65 67 67 67 69 69 72 72 73 75 75 75 76 76 77 83 83 84 84 85 86 86 87 87 x ContentsValuation Techniques Management Information Periodic Assessment of Value Chapter 8 Allocation of Costs to Accounting Periods Introduction Costs of Using up Assets Depreciation Estimated Life Cost Basis Allocation Methods Accelerated Depreciation Other Depreciation Concerns Tax versus Book Depreciation Balance Sheet Disclosure Not-for-Profit Organizations Chapter 9 Regulated Utilities Introduction Differences in GAAP Telecommunications Accounting Basic Property Record Telecommunications P lant in Service Chart of Accounts Railroads Property Accounts Cost of Construction Units of Property List of Units of Property Accounting for Engineering Costs 88 89 90 93 93 94 95 95 96 97 98 99 100 101 101 105 105 106 106 107 109 110 111 111 114 114 115 Contents xiCommon and Contract Motor Carriers of Passengers Carrier Operating Property Depreciation Minor Items Uniform System of Accounts—Tangible Accounts Account Definitions Chapter 10 Government Accounting Introduction Measurement Focus Fund Accounting Funding for Government Assets Accounting Standard Setting Measuring Service Efforts and Accomplishments Current Government GAAP Property Records Infrastructure Assets Measurement of Utilization Establishing Property Record Establishing Property Record Units Infrastructure Property Units Planning Accounting Policies Software Selection Off-the-Shelf Software Chapter 11 Not-for-Profit Accounting Introduction Accounting Definition of Not-for-Profit Organizations 117 117 117 11 9 119 119 123 123 124 125 126 126 127 128 128 129 130 131 131 131 132 133 134 135 135 136 xii ContentsAccounting Problems of Not-for-Profit Organizations Formal Accounting Standards Need for Change in Not-for-Profit Accounting Accounting for Property, Plant, and Equipment Creating Property Records Property Record System Documentation Chapter 12 Creation and Verification of Property Records Introduction Purpose of Property Record New Concept Requirements for a Physical Asset Database Property Record Units Coding Systems Property Record Codes for Motor Vehicles Other Codes Required Property Record ID Number Maintenance of the Property Record Database Responsibilities of Asset Manager Updating Records Recording Maintenance Costs Verification of Physical Existence Military Commander Approach Foreign Corrupt Practices Act Fully Depreciated Assets Reports from the Property Record System Chapter 13 Computer Programs Introduction Asset Database Software 138 139 140 141 143 145 147 149 149 1 50 151 152 155 155 156 156 157 158 158 159 160 161 161 163 164 165 167 167 167One-Write Systems Existing Database Programs Software Selection Off-the-Shelf Property Record Database Packages Review Copies of Software Evaluation of Software Packages Program Review Checklist for Program Review Database Fields Bibliography Index 168 169 169 170 170 171 172 175 176 179 185 xiii About the Author Raymond (Ray) H. Peterson is currently the senior partner of Ray Peterson & Associates, a consulting firm offering business assistance in establishing and changing accounting systems. He has served as the treasurer of a number of nonprofit organizations. He has over thirty years experience as a management accountant with the Bell System. He retired as Director of Financial Accounting with Pacific Bell. Mr. Peterson has managed the design of Pacific Telephone and Telegraph Companies detail property records.During the three-year breakup of the Bell System, he was appointed to a Federal Communication s Commission task force to create a new uniform system of accounts for telephone companies. The proposed system was adopted by the FCC and was installed in all telephone companies. Mr. Peterson served for 12 years on the Institute of Management Accountants Financial Accounting Standards Committee and its predecessor Subcommittee on Management Accounting Statement Promulgation. He received a BS from California State University at Hayward and an MBA from Golden Gate University in San Francisco. He also taught accounting and management information systems at Golden Gate University. xv PrefaceSince the first edition of this book in 1994, not much change has occurred to accounting standards for Property, Plant, and Equipment in business. The GAAP promulgated by the Financial Accounting, FASB, has been to further the concept of identifying the cost of an asset and spreading that cost over the accounting periods that benefit. Accounting for contributions, impairments, and financing of asse ts have been addressed by the FASB. In contrast, much has happened in the areas of Not-for-Profit and Government accounting for fixed assets. FASB ordered the capitalization of assets and charging of depreciation by Not-for-Profits. The government Accounting standards Board was created as an equal to the FASB with the authority and responsibility to promulgate GAAP for governments.They replaced the Government Finance Officers Association and its â€Å"Blue Book†, Governmental Accounting, Auditing, and Financial Reporting as the â€Å"official† accounting rules for State and Local government. An early step by the new GASB was to suspend depreciation for â€Å"government† not-for-profit accounting. There was a determination of jurisdiction between FASB and GASB which are outlined in Chapter 10, â€Å"Government Accounting† and Chapter 11, â€Å"Not-For-Profit Accounting. † Then the GASB issued concept papers that moved government accounting toward th e practices long held as appropriate for businesses. These concept papers state that assets should be placed on the books at acquisition cost and that cost spread over the accounting periods they benefit. This is a major change in accounting for these groups.Past practice was for assets to be purchased and expensed in the current period, if purchased with general revenue, or not even recorded if purchased with bonds or other special revenue sources. There was considerable argument that these changes were not appropriate for governments. Implementation of GASB statement 33 and xvii xviii Preface 34 were delayed, but are now being implemented. The accounting for governments is not the subject of this book and government accountants are referred to GASB and GFOA publications in the bibliography for the details. However, some discussion is included because it will be of interest to the business accountant that is establishing accounting policy for business and not-for-profit organizatio ns.There has been considerable argument that fixed assets of businesses should be recorded on the books at something different than depreciated original cost, that adjustments should be made to reflect the market value up as well as down, and that book asset accounting should be changed from cost allocation to reflect some measurement of value. The public review and promulgation process of the GASB provide rebuttals to all of those arguments. I urge any accountant that holds those views to research the process that GASB statements 33 and 34 followed, much of which is available on the web site at http://www. gasb. org. This book is designed for accountants and managers who want to get the most from the physical assets of their organizations. Most readers are already familiar with the oncepts and practical application of total quality management (TQM) zero defects, and the other procedures that describe a continued process of improvement. Having made the process and management changes that brought about easy improvements in quality and cost reduction they are ready to answer the following questions: How are you applying the principles of continuous improvement to the management of property, plant, and equipment? Do you have a process in place that allows you to monitor the status of maintenance (or deferred maintenance) on your property, plant, and equipment? What is the age of the oldest piece of your production equipment? Do you have a plan in place for replacement of production facilities?Are there any quality problems in your production or service delivery system caused by property, plant, and equipment failures? What is the utilization percentage of the property, plant, and equipment? Can you determine the utilization of your most expensive piece of equipment? Do you have service or production problems attributable to equipment not being available at the place needed? Are all of your property, plant, and equipment being utilized to their fullest? Preface xi x Do you have in place a process that monitors the current condition, evaluates the future need for replacement, and brings to your attention needs to modify that plan? Do you manage your physical assets or do you put them in place, use them, and replace them when they are worn out?Do your plans include having the necessary cash to purchase replacement physical assets or will you have to do an extraordinary financing or fund-raising when you are surprised by their failure? Is there a plan in place for overall management or do you simply hope your assets will continue to allow you to produce your product or provide your service? The purpose of providing this book on accounting for property, plant, and equipment, is to provide the framework for you to install in your organization accounting processes and procedures that will allow you to manage long-term physical assets. How can a book on assets help answer these questions? All accounting students learn the basics bout assets within v arious accounting courses, however, there really is not much definitive information available on fixed assets in the accounting literature. The Accounting Principles Board and the Financial Accounting Standards Board are both silent on the subject of accounting standards for fixed assets. Lacking a primary source for accounting standards, it is necessary to look to secondary sources, which also contain very little information on the handling of assets. Most accounting textbooks devote only a single chapter to capitalization of assets, and do not cover the subject in depth. Accounting periodicals have focused on valuation of assets, but offer little on specific concepts of capitalization.The issue of valuing at historical cost versus current market price has received considerable interest over the years. Now the FASB has issued statement 93 requiring not-for-profits to use historical cost less depreciation asset accounting. GASB has issued statements 33 and 34 that require that accou nting for all but a few assets. It is even more important to have this single reference to bring all these prospectives together. A number of organizations including the American Institute of Certified Public Accountants, the Institute of Management Accountants, and the Government Finance Officers Association offer courses on capitalization of assets. Most of these courses, however, cover either the tax implications of assets or the valuation question.Little in these courses describes how to establish asset policies, document them in a manual, and apply them within the company. xx Preface During 1989-1990, the National Association of Accountants (now the Institute of Management Accountants) replaced their original Statement on Management Accounting (SMA) on Fixed Assets with two statements relating to accounting for property, plant, and equipment. SMA 4J, published in 1989, described the accounting for property, plant, and equipment, and SMA 4L, published in 1990, covers control of property, plant, and equipment. A research issues publication called the Reporting, Control, and Analysis of Property, Plant, and Equipment was published in 1990.This collection of publications represents the majority of the available information on accounting for fixed assets. As a part of the IMA team coordinating those projects, I became convinced this book was needed. There is a need to emphasize that assets must be managed, not just purchased, used up, and replaced. The objective is to provide not only accounting for assets, but include that accounting in a process that will allow management to get the most out of the company’s investment. It is not always possible to create more debt in order to acquire assets. Therefore, some of our consumption must be sacrificed today in order to provide quality assets for tomorrow.In today’s complex business best quality and maximum utilization are going to give the best return on investment. Accounting for Fixed Assets contai ns more than the routine accounting processes. It also has the management framework that must surround the accounting process. The United States economy has been built since World War II as â€Å"a paper plate society. † We rapidly built our economy based on the philosophy of quick production without much concern for quality. We built automobiles that only lasted a few years, and, in fact, are still building houses in the same way that we did in the early 1950s. They require major renovation every fifteen or twenty years.Many of the houses of the early 1950s are currently the subject of redevelopment districts: they either require major repair or must be ripped out and replaced. We have built a tremendous economy and brought the majority of citizens to the highest standard of living of any culture with this â€Å"doit-quick† philosophy. It created many jobs, especially at the unskilled and semiskilled level, and brought the pleasure of accomplishment and the fruits of labor to the largest segment of U. S. citizens quickly. We have done so, however, for the sake of today and at the expense of tomorrow. But tomorrow has arrived, and we cannot continue to use up our assets. Those assets capable of bringing future benefits must be managed in a way that will allow those future benefits to occur. Preface xxiThe European and Japanese economies have grown much more slowly; jobs and the rewards that come from labors are just now reaching many segments of those cultures. However, the infrastructure base there, the assets like roads, houses, and other buildings, constructed in the 1950s is still in use and not in need of major repairs. A complete difference in philosophical approach was used in building the base for their economies. They have not sacrificed tomorrow for today, but in fact sacrificed yesterday for today—and today has arrived. Assets are those things we purchase today that will bring future benefits. But those assets must be managed to get those future benefits.To compete in a level playing field across the world, instead of in one where we make all the rules, we in the United States must evaluate our present practices. We can no longer afford to put two or three times the percentage of our gross national product into the nation’s dumps each year than competing countries do. We can no longer approach the building and operating of our businesses as we did during World War II. We learned there that we can build things quickly if they are only needed for a few years or are abandoned on the battlefield. Much of our managerial approach to business assets is alarmingly similar: build it, use it, and throw it away.To many, it is even worse than that; we buy it and don’t think about it again until it is worn out or disrupts the production line. Accounting managers must rethink their accounting processes for assets. To be value-added, accounting information must be simple and understandable, and must provide relevant, timely information to those who make decisions based on it. My goal in producing this book is not just to provide a comprehensive treatment of the details of accounting for fixed assets, but also to provide the management accountant with the processes to provide good relevant decision-making information for the officers of the company. Also, I provide the processes that are necessary to manage those assets.The book is organized to allow you to skip over the initial processes necessary to the system, and understand the principles and philosophy that are necessary in managing assets. I will also suggest a different approach to management of assets. An asset is current production that is not used up, and instead provides the means for future productivity. A hundred years ago, assets were known by business people as capital goods. Capital goods are something that must be managed for the future, not just to benefit current quarter earnings. Accounting for Fixed Assets 1 What I s Accounting for Fixed Assets? INTRODUCTION Most accounting professionals believe that all there is to be learned about asset accounting occurred in the introductory course on principles of accounting.Therefore, although this subject can become quite complex, it has not been explored in the accounting literature. In 1984 when the Federal Communications Commission (FCC) called for the rewriting of the uniform system of accounts for telephone companies, public utilities had not been following generally accepted accounting principles (GAAP) as outlined by the Financial Accounting Standards Board (FASB) and its predecessors, but instead used procedures that had been outlined in 1934 by the FCC. The team responsible for making recommendations on the rewriting of the system of accounts established a basic policy that what was to be recommended would comply with current GAAP.The subcommittee responsible for reviewing and recommending procedures for property, plant, and equipment was frustr ated by the lack of definitive information on accounting for assets. The primary sources are very limited. The Accounting Principles Board (APB) and the later FASB have been nearly silent on the subject beyond defining depreciation and historical costs. Accounting Research Bulletin (ARB) 43 was issued in 1953 to summarize all previous GAAP. It requires that depreciation be calculated 1 2 What Is Accounting for Fixed Assets? and disclosed. Most of the additional discussion on tangible assets involved explaining why depreciation is appropriately calculated using historical costs.It is true that management must take into consideration the probability that plant and machinery will have to be replaced at cost much greater than those of the facilities now in use; however, depreciation must not be calculated on the basis of this expected inflation. ARB 43 in paragraph C5 goes on to state: The cost of a reproductive facility is one of the costs of the services it renders during its useful e conomic life. Generally accepted accounting principles require that this cost be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility.This procedure is known as depreciation accounting, a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational matter. It is a process of allocation, not of valuation. After formation of the Accounting Principles Board, APB 6 was issued in 1964 continuing the authority outlined in ARB 43. The Board continued to support the use of historical cost as opposed to inflation accounting: The Board is of the opinion that property, plant, and equipment should not be written up by an entity to reflect appraisal, market or current values which are above cos t to the entity. APB 12, issued in 1967, requires the disclosure of depreciable assets and depreciation.In addition to total depreciation expense and the major classes of depreciable assets, it also requires disclosure of: †¢ Depreciation expense for the period. †¢ Balances of major classes of depreciable assets by nature of function, at the balance sheet date. †¢ Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance sheet date. Consumption of Benefits †¢ A general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets. CONSUMPTION OF BENEFITS 3 In 1984, the FASB issued Concept Statement 5, which included additional discussion of assets. However, it was also limited in scope, as one would expect in a concept statement.The discussion emphasized the recognition assumption of assets, clearly indicating that assets are consumed by their use and the cost shou ld be recognized in the accounting periods of their life. Consumption of economic benefits during a period may be recognized either directly or by relating it to revenues recognized during the period. Some expenses such as depreciation and insurance are allocated by systematic and rational procedures to the period during which the related assets are expected to provide benefits. â€Å"Any expense or loss (in future benefits) is recognized if it becomes evident that previously recognized future economic benefits of an asset have been reduced or eliminated. Since its creation, the FASB has entertained considerable discussion about assets, but the only statements issued cover specific assets: †¢ †¢ †¢ †¢ †¢ Expensing versus capitalizing research and development The accounting for software Depreciation in not-for-profit organization financial statements Impairment of Assets Involuntary Conversions FASB Concept Statement 6, Elements of Financial Statements, has more material than any other on the accounting for long-term tangible assets. However, it addresses itself primarily to the definition, the purpose of accrual accounting, and the characteristics of an asset. In 1985, Concept Statement 6 added a definition of assets: Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 4 What Is Accounting for Fixed Assets?CHARACTERISTICS OF ASSETS Concept Statement 6 continues, enumerating the three essential characteristics of an asset: †¢ It embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to combine directly or indirectly to future net cash in flows. †¢ A particular entity can obtain the benefit and control others’ access to it. †¢ The transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred. This is the first discussion in promu lgated accounting rules discussing the definition and characteristics of an asset. The major thrust is that probable future benefit is the definition of an asset.To reflect it on the balance sheet, the entity must be able to obtain benefit from the asset and control others’ access to the asset. This statement also reviews the concept of future economic benefit and service potential as it relates to not-for-profit organizations. It states: In a not-for-profit organization, the service potential or future economic benefit is used to provide desired or needed goods or services to beneficiaries or other constituents, which may or may not directly result in net cash inflows to the organizations. Some not-for-profit organizations rely significantly on contributions or donations of cash to supplement selling prices. . . This discussion introduces the argument that depreciation of tangible assets is an appropriate expense of not-for-profit organizations. In a discussion of accrual ac counting, Concept Statement 6 discusses assets under a heading â€Å"Recognition, Matching, and Allocation. † In paragraph 145, it states: Accrual accounting uses accrual, deferral, and allocation procedures whose goal is to relate revenues, expenses, gains, and losses to periods to reflect an entity’s performance during a period instead of merely listing its cash receipts and outlays . . . the goal of accrual accounting is to account in the periods in which they occur for the effects on an entity of transactions andCharacteristics of Assets other events and circumstances, to the extent that those financial effects are recognizable and measurable. 5 There is a discussion of costs and revenues to determine profits for periods. Depreciation and assets are excluded from the matching concept. Paragraph 149 of Concept Statement 6 explains: However, many assets yield their benefit to an entity over several periods, for example, prepaid insurance, buildings, and various kinds of equipment. Expenses resulting from their use are normally allocated to the periods of the estimated useful lives (the periods over which they are expected to provide benefits) by a rational allocation procedure, for example, by recognizing depreciation or other amortization.Although the purpose of expense allocation is the same as that of other expense recognition—to reflect the using up of assets as a result of transactions or other events or circumstances affecting an entity—allocation is applied if causal relations are generally, but not specifically, identified. For example, wear and tear from use is known to be a major cause of the expense called depreciation, but the amount of depreciation caused by wear and tear in a period normally cannot be measured. This discussion appears to make the distinction between the matching principle for revenues and expenses and the allocation of the cost of using up future benefits. Although this distinction is subtle, it is t he point of basic disagreement between those who argue for inflation accounting and the depreciating of assets based on current market value and those who argue for depreciating using a lesser historical cost.Appendix B of Concept Statement 6 further discusses characteristics of assets, defining assets as â€Å"probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. † Most of this discussion relates to intangible or nonphysical assets. The FASB, in issuing its Statement 2, Accounting for Research and Development Costs, also gives us some information on what makes up tangible physical assets. In their concern for the appropriate accounting for research and development costs, they conclude that all should be charged to expense accounts. However, they do give us their thoughts 6 What Is Accounting for Fixed Assets? bout which tangible assets should and should not be included in research and development costs. A prime consideration is that materials, equipment, and facilities that have an alternative future use (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. However, the costs of such materials, equipment, or facilities that are acquired or constructed for a particular research and development project and have no alternative future uses and therefore no separate economic values are research and development costs at the time the costs are incurred. All research and development costs encompassed by the statement are charged to expense when incurred.This reflects the concept that research and development costs will be used up during the span of the research project. Tangible assets that have a life beyond the current project, however, should be capitalized and depreciated over their useful lives. The preceding paragraphs summarize the present state of GAAP relating to property, plant, and equipment. Many subjects in acco unting have not been covered at length within the promulgated statements. Most with the significance of longterm tangible assets have been covered in more detail in secondary accounting material, but few secondary publications provide any indepth discussion on fixed assets.Research bulletins and disclosure drafts having to do with inflation accounting have not been allowed to creep into generally accepted accounting principles. Therefore, in determining the details of an accounting system for property, plant, and equipment with the FCC study in 1984 and 1985, the committee felt it necessary to use the secondary documents on assets. The documents were used to establish current practice and to form a model that telecommunications companies should use instead of the 1934 FCC regulations. The only additional definitive document discussing accounting for property, plant, and equipment was issued by the Institute of Management Accountants (IMA, formerly the National Association of Account ants) as Statement on Management Accounting (SMA) 4.SMA 4 was issued in October 1972 with the title, Fixed Asset Accounting: The Capitalization of Cost. Several concepts outlined in the twenty-four-page statement include the following: Costs through preparation for use Extraordinary repairs Base unit Characteristics of Assets Extended life or increased capacity Written policies Capitalization policy Life greater than one year Self-constructed assets that include direct overhead No initial development cost Depreciation 7 The SMA 4 discusses a number of concepts which were then, and still are, common practice. All Costs to Prepare Item for Use All costs in addition to the invoice price to make an item of property, plant, and equipment ready for use should be capitalized in its historical cost.Extraordinary Repairs Normal repairs are charged to expense when incurred; however, extraordinary repairs that extend the life, increase the capability, or increase efficiency of the item should be capitalized during its life, the historical cost increased, and depreciation recalculated from that date forward. Base Unit The base unit concept is not dealt with in any other document. It outlines the concept that property units should have a policy determination as to what constitutes the property record entity that is capitalized. The base unit might be a complete machine or the individual components of that machine. This concept is important when establishing a usable property record system for a particular company. For example, entities that use light trucks as maintenance vehicles may wear out a number of trucks during the lives of hydraulic lifts, welding equipment, and utility beds.Written Policies It is important for each company to have an asset manual with written policies. Determinations of appropriate base units and other policies unique to a company must be described and documented. Without written policies, asset accounting will not be consistent over a period of time. 8 What Is Accounting for Fixed Assets? Capitalization Policy A minimum level of capitalization should be identified. Accounting records that cost more than the items are worth are not cost effective. Life Greater than One Year Policy should emphasize that items with a life restricted to one accounting period should be expensed no matter what their cost.Self-Constructed Assets All costs of preparing assets for use should be capitalized; however, only directly attributable or traceable overhead costs should be included. General and administrative overhead costs should not be capitalized. If a company is not in the business of constructing assets, overhead costs are not likely to be increased by an individual construction project. Therefore, if those costs were capitalized, expenses in the accounting period that the asset was being constructed would be improperly reduced. Additionally, the initial development cost of making a decision on which project to construct should not be i ncluded in capitalizable costs. Subsequent costs for a specific project, once the decision has been made, are capitalized.Depreciation The idea of the relative permanence of assets that are â€Å"fixed† is questioned by SMA 4. The statement notes that periods of nonuse should be excluded from the depreciation schedule: â€Å"Until these assets can be said to have completely satisfied the purpose for which they are intended— normal or acceptable production capability—they are, for the time being, suspended accounting-wise in a sort of hiatus, not producing income, hence not triggering depreciation against which it is to be set. † SMA 4 was replaced in 1989 and 1990 by Statements 4J, Accounting for Property, Plant, and Equipment, and 4L, Control of Property, Plant, and Equipment.These two documents were prepared from a research project published by the IMA Research Committee, reporting control and analysis of property, plant, and equipment. In other documen ts the discussion of accounting for fixed or physical assets is limited to a chapter, or a few paragraphs in accounting textbooks. No lengthy document has been published that brings all the concepts of accounting for property, plant, and equipment together. Need to Change 9 There are many articles on fixed assets in accounting magazines such as Strategic Finance, published by the Institute of Management Accountants (IMA) and the Journal of Accountancy, published by the American Institute of Certified Public Accountants (AICPA). Most of these articles discuss theoretical issues of inflation accounting and depreciation.There are a number of accounting courses offered by such organizations as the IMA, AICPA, and the American Management Association, as well as by a number of accounting and appraisal firms. However, these courses are mostly directed toward the tax requirements of accounting for depreciation. Similarly, there are numerous off-the-shelf personal computer programs aimed at fixed asset accounting. Again, the primary purpose is to fulfill tax requirements and generate depreciation entries. Only a few provide for comprehensive property records. NEED TO CHANGE It has become obvious that management must change the manner in which they approach long-term tangible assets. The many production facilities built in the United States are wearing out.Government infrastructures of roads, sewers, sidewalks, and utilities are all suffering from the concept of â€Å"put it in place and forget about it. † The need is to get the most use out of these tangible assets. Much of the discussion having to do with inflation accounting for assets revolves around the problem that depreciation is not sufficient to cover the replacement costs of assets. The high cost of replacements, the dwindling supply of capital available, and high interest rates all require that new management control systems be put into place. With adequate control, management, and measurement of asset utilization, organizations can maximize the benefits from their investment in long-lived, tangible assets. 2 What Is an Asset?INTRODUCTION According to the Financial Accounting Standards Board Concepts Statement 6, assets are â€Å"probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. † The Institute of Management Accountants’ Accounting Glossary adds a second definition as â€Å"any owned physical object (tangible) or right (intangible) having economic value to its owners; an item or source of wealth with continuing benefits for future periods, expressed, for accounting purposes, in terms of its cost, or other value, such as current replacement cost. Future periods refers to the following year or years. † (SMA 2A) In its broadest sense, an asset is anything that will probably bring future economic benefit.In looking at assets, the focus will be on longlived tangible assets, sometimes referre d to as fixed assets or property, plant, and equipment. Assets are classified into two categories: tangible and intangible. Tangible assets are assets that one can touch, hold, or feel. Typically called fixed assets in accounting literature, tangible assets are the physical things that a business uses in the production of goods and services. They constitute the production facilities, buildings, equipment, and vehicles. These operational assets of a business include furniture, computers, and similar items not used up within a year. Intangible assets are primarily financing items: stocks, bonds, mortgages, etc.These assets are outside the scope of this book. 11 12 What Is an Asset? Assets that are converted into cash during the normal production cycle are current. Current physical assets are referred to as financial assets. These are physical assets such as raw materials, work-in-progress inventories, finished goods, and goods held for resale. Physical items can be financial assets, h eld in inventory, in one business, whereas in other businesses or applications they may be fixed assets. An example of such a financial asset would be real estate held in inventory by a real estate investment and sales organization or builder, which would be a fixed asset for everyone else.Equipment manufacturers have financial assets in finished goods or inventory held for sale, as well as plant and equipment that will be sold to other businesses. The inventory is a financial asset; when sold for use in a production line it becomes a fixed asset to the purchaser. HISTORICAL COST Historically, asset accounting has not stimulated the interest of accountants and managers in the United States. Assets have been analyzed in depth in terms of alternatives and appropriateness of the investment prior to purchase. However, once acquired and put in place, assets such as buildings, furniture, production equipment, and motor vehicles are given little attention.Where management attention has bee n focused, it has been in terms of return on investment and major tax benefits, such as investment tax credits and accelerated depreciation expense allowed on tax returns. In fact, these government tax incentives to buy new equipment in order to stimulate the economy have influenced management to replace still-useful assets that have been depreciated on the tax records. But there is a new perspective emerging on the part of managers and accountants with respect to fixed assets. The high initial cost to purchase, as well as the high carrying costs of debt, require a rethinking of the management of fixed assets.Many of the same factors that are bringing about just-in-time accounting philosophies and zerodefect quality control within the manufacturing process are also influencing managers’ perspectives on asset management. Zero defects and quality circles of employees are aimed to reduce the high cost of lessthan-perfect products and reflect today’s need for greater preci sion. To accomplish this higher quality production, it is necessary to have highquality production equipment. This requires preventative maintenance to keep closer tolerances and less downtime. Equipment that Matching Principle 13 fails during a production run leads to extremely high cost when the line stops.Preventative maintenance is being regularly scheduled on either an hours-of-use or calendar basis. This approach has begun to replace the attitude of put it in, use it, if it breaks repair it; if it breaks too many times, discard it and replace it. In addition to the requirements of modern processing, a new perspective on the need to manage assets—those things that you have saved and paid for which will bring future benefits to the business— has come about as a result of the significant debt held by many businesses. The public’s attention has been caught by the high government deficit, which must be financed by acquiring increasingly more debt.Large existing debt and the threat of higher interest rates on new debt due to the lower financial ratings are causing many managers to reconsider how to manage the assets they already have. Getting the maximum future value out of existing buildings and production equipment has become a more important aspect of management. In addition to process requirements and debt concerns, the cost of disposal is also growing at an alarming rate. Replacing individual parts instead of entire machines will reduce the production of refuse. In the past, accounting records of assets have been kept primarily for the purpose of establishing balance sheet amounts. The historical cost of purchasing or constructing the physical asset is included in the accounting property record.This amount, less depreciation, provides the basis for a return on investment calculation, the division of net assets (original cost less book depreciation) by net income. MATCHING PRINCIPLE The matching principle of accounting calls for the ma tching of costs with the accounting period those costs benefit. The purpose of the historical cost record is to ensure that the costs incurred in the purchase of assets in a past accounting period will be spread over the future accounting periods that benefit. The costs recorded for each asset acquired include the purchase price and anything necessary to make it ready for production. All expenditures involved in the acquisition of an asset and getting it ready for use are capitalized as part of original cost.Included are the invoice price for the asset, transportation charges, and installation costs, including any construction or changes to the building necessary to house it. Other incidental costs are sales or use tax, duties on imported items, 14 What Is an Asset? and testing and initial setup costs. The total costs of acquiring and putting the asset into actual production use should be capitalized. The use in production at a reasonable production rate (as opposed to limited use d uring testing) is also the point where capitalization stops on the new asset and depreciation begins. The cost of an asset must be spread on a rational, systematic basis over the periods of its useful life. This limited accounting application of historical cost records has led to many incorrect decisions regarding asset management.Recognizing this limitation, however, does not mean historical costs records are not necessary. Records must be established to provide information on location, maintenance history, and future usefulness of assets. Today’s high costs of debt and the need to safeguard physical assets requires going beyond the matching principle in creating property records. FIXED ASSETS Historically, even the term that accountants use for the long-lived tangible assets of business, that is, fixed assets, expressed the opinion that once purchased it is fixed, long term, and does not require management attention. In the last few years, the more common â€Å"property, p lant, and equipment† has been used to describe the operational assets of a business.Managers have found it necessary to provide additional information about property, plant, and equipment and created records separate from the accounting property record. Additional information includes current market value for insurance and security purposes, and utilization and maintenance records. A single accounting record of tangible assets with normal accounting controls is far superior to multiple records. This integrated record with accounting controls has been made much simpler with the advent and widespread use of small computers. For example, recording maintenance expenses for large equipment items is now easy. In a motor vehicle fleet, actual maintenance costs can be recorded in the property record of each vehicle.This allows review to ensure preventative maintenance is scheduled and also to establish criteria for disposing of older motor vehicles when they are no longer economical t o maintain. It then becomes possible to evaluate motor vehicles based on their entire maintenance record, rather than retiring vehicles based on age or mileage alone. What are assets fixed in? Are they fixed in time, space, or value? It is doubtful that they are fixed at all. IMA defines fixed assets as Fixed Assets 15 â€Å"noncurrent, nonmonetary tangible assets used in normal operations of a business. † See property, plant, and equipment in SMA 2A. Past practice has been to handle fixed assets as a â€Å"sunk cost,† a past cost which cannot now be reversed and, hence, should not enter into current decisions.Differential cost is â€Å"the cost that is expected to be different if one course of action is adopted as compared with the costs of an alternative course of action; used in decision making. Contrast with sunk costs. † (SMA 2A) If it is a fixed cost, then it is also a sunk cost. Is it really an asset if you cannot sell it? If you cannot move it, modify it , or maintain it? Those are alternative actions; therefore, historical cost of property, plant, and equipment are differential costs, not sunk costs. The term â€Å"fixed† cost implies a sunk cost. This management treatment of fixed costs as sunk costs may encourage hostile takeovers using junk bonds.If the current management and stockholders ignore the alternative uses of their long-term tangible assets, an outsider may see a much greater short-term value. In a case like this the current managers and owners are treating the fixed assets as a sunk cost instead of a differential cost. Few assets are fixed in any way. Most are mobile, and will disappear if not accounted for or deteriorate if not maintained. Many increase in value just because of inflation. If they do not increase in value, their replacement cost certainly increases. Typically, insurance policies require that coverage be at least 80 percent of replacement cost or recovery is limited to market value prior to the loss.Even the government is learning that their fixed asset theory for infrastructure assets needs amendment. Roads, bridges, sewer plants, and buildings seem to be in need of replacement at the same time, because they were put in place and ignored. No plan was prepared to manage them, to determine the best maintenance practice. Now they are not assets, but sources of liability. While government has a limited liability from suits due to personal injury resulting from improper maintenance of roads, etc. , businesses do not enjoy this limitation. If an employee or customer is injured by one of your bridges, roads, or other holdings, you are responsible for the costs.Is that driveway or parking lot really a fixed asset? Or one to be managed so it will not become a liability? It is difficult to imagine something that should be called a fixed asset. Assets are not fixed in any way—not in place, time, or future income 16 What Is an Asset? or expense. The exception might be a work o f art or historical treasure; however, even these items, if not protected, will deteriorate. In defining assets, therefore, we shall use the terms property, plant, and equipment and avoid future use of the term fixed assets, which is in reality an obsolete term for property, plant, and equipment. PROPERTY Property includes lands and improvements thereon.Land is not depreciated and its cost lasts in our theoretical business model forever. The cost of land includes its acquisition cost—costs of appraising, recording, and obtaining title. It also includes the initial costs of making changes to it so that it can be used for the purpose intended. This cost includes removing old buildings, leveling, and perhaps cleaning up any toxic residue. When land is acquired together with buildings, the cost will be apportioned between the land and the buildings in proportion to their appraised value. If the acquisition plan contemplates the removal of the buildings, then the total cost includ ing removal is accounted for as cost of land. Any salvage value of the emoved buildings, when disposed of, is deducted from the cost of the land. Toxic residue cleanup provides a particular problem in accounting for land. If the extent of the toxic cleanup costs are known prior to purchase, it is assumed that the purchase price has been reduced accordingly. Then it is correct to include those cleanup costs in the cost of the land. However, where land is owned and toxic residues from past practice are discovered, the cleanup of these items provides no future value. Cleaning up these toxic wastes is similar to washing a rental car or limousine. You may not be able to generate any rental revenue without a clean and polished automobile, but it does not provide future value beyond that.Cleaning up toxic wastes makes the property usable; however, it does not provide future benefit: It can only restore the usefulness of the property to its level of use prior to recognizing the toxic proble m. Improvements that theoretically have an indefinite life are also added to the cost of land. Grading, drainage, sewers, and utilities are examples. These items are put in once and unless damaged by force or disrupted by plans for new uses of the land, they do not require maintenance. Therefore, their life is assumed to be that of land forever in the accepted business model. The proper treatment of property costs is an area that must be spelled out in the accounting manual for the firm so that all similar Plant 17 transactions are handled in the same way.The manual should translate these principles into specific accounting practices for the firm. For example, electric and gas utility installation to the meter or distribution point are usually a part of the land cost. Beyond this, location utilities and part of the individual building investment are to be included in the plant category. The acquisition of property may bring about other expenditures which should be added to its histo rical cost. Some of these are as follows: Contract price Real estate broker commissions Legal fees involved in the transaction Cost of title guaranty insurance policies Cost of real estate surveys Cost of an option that has been exercised Special government assessments Fees harged by government for changes in land use or zoning Cost of removing buildings Cost of cancellation of unexpired lease Cost to move tenant if payable by purchaser Payment of past due taxes if payable by purchaser Cost of easements or rights of way Assessments for the construction of public improvements Deduction of salvage value from buildings removed and sold Toxic waste cleanup Grading land and providing drainage Placing utilities PLANT The term plant has its origin in manufacturing, where the plant is literally used to house the production equipment. This includes buildings and other structures or improvements that have a limited life. Paved parking lots and sprinkler systems, as well as recreational and la ndscaping improvements, are included.Also included in plant are fences, roads, and grading and excavation costs necessary to construction of the buildings. The distinction between property (land) and plant is the 18 What Is an Asset? duration of usefulness. Improvements to the property that will have a measurable or estimated life should be depreciated over that life. Therefore, they are charged to the plant account. If they are of indefinite life, they are treated as property. All expenditures directly related to the purchase or construction of buildings or other physical plant are included in plant cost. Land includes the cost of preparation of a construction site. All costs for a specific construction are included in the cost of the product.Some of the other expenditures that should be added to the capitalized cost of the asset acquired are as follows: Contract price or cost of construction Cost of grading and excavation for the specific building Expenses incurred in removing tre es and other foliage for the specific building Costs of remodeling or altering a purchased building to make it ready for use Costs for architect’s fees, plans, and other planning events Cost of government fees and building permits Payment of prior year taxes accrued on the building if payable by purchaser Other costs such as security or temporary fencing, temporary buildings used during construction, or other costs directly attributable to the construction or purchase of the specific building Capitalized interest EQUIPMENT Equipment includes the machinery, computers, office equipment, and all other long-lived items necessary for the operation of the business.These items require more managerial control because of their portability and general usefulness for other than the purpose intended when acquired. They range in price from a minimum capitalization level to many millions of dollars for complex production machinery. Because of the wide variety of requirements for different items of equipment, we shall discuss them in several categories, including: Tools Building systems (heating, cooling, elevators) Equipment Irrigation equipment Furniture and office equipment Computers Printing presses Automobiles Tractors Trucks Trailers Aircraft Livestock Furniture and Office Equipment 19 Furniture and office fixtures are long-lived assets needed to run a business.In the service industries, except for buildings, these will be the major tangible assets of the business. The establishment of a reasonable minimum capitalization level has to be weighed against the other factors of managing this class of equipment. Office desks and chairs that are personally used by one manager will receive the attention necessary to safeguard and ensure proper maintenance as required. Many companies establish a $5,000 minimum capitalization level for these items. However, telephone equipment purchased may become obsolete or require significant maintenance after a short period of time. A lso, office copiers, fax machines, and computers have a need for greater management and future planning.It is important that these items not all have a requirement for replacement in the same future year. Inclusion in the property record, which subjects such items to the controls provided in that system, may in fact reduce the dollar value at which it is desirable to maintain capitalization. These items should be included in a detailed policy and outlined in the handbook on asset capitalization or its chapter in the accounting policy manual of the business. When the decision is made to capitalize a particular item of equipment, all costs involved in putting it into a condition ready for use should be included in the asset value. Some of the costs that may be incurred are: Contract price Commissions paid 20 What Is an Asset?Legal fees and other contract costs Cost of title guaranty insurance policies Cost of transferring title Freight, handling, and storage costs Sales or use tax and other taxes or fees assessed Costs of preparation of the space for installation (foundations, special walls, removal of windows) Use of cranes or other means of installation Installation charges Cost of testing and preparation for use Costs of reconditioning used equipment purchased DEFINING ASSETS Assets are not always easily defined. For example, a Berkeley, California, producer of â€Å"baby† vegetables for New York City upscale restaurants could not function without the regular and dependable inexpensive air shuttle of the crop each morning.The New York restaurants pay a premium for the product, but it must be picked that morning and delivered to New York City by noon for serving in restaurants that evening. Is the transportation link from San Francisco airport to New York an asset of this Berkeley producer? From an accounting sense, it is not; however, it continues to deliver future benefits to the company. Without that transportation link being available, there would b e no business; but it would be impossible to establish any value to that transportation link without a sale. If the business were to be sold, it is likely to command as an operating business more than the value of its individual components. This additional value will be included on the purchaser’s balance sheet as goodwill.Much of that goodwill can be a result of an existing working transportation system from the producer’s garden to the upscale restaurants. Goodwill is an intangible asset. Accounting recognizes it only because there has been an actual payment for it. It must be recognized somehow as its usefulness is used up over future periods. The asset exists whether it is recognized in the book of accounts as goodwill or not. However, this emphasizes the accounting concept of recognizing asset value in accounting systems for the purpose of measuring the decrease in its future usefulness in relationship to its original cost. In this Defining Assets 21 case, it is n ot a problem in defining the asset, but in establishing the asset’s value. There are other difficulties in defining an asset.In industries where investment in property, plant, and equipment is low in comparison to return on products, there has been no need to closely manage the investment in assets. Examples are restaurants where investment is limited to leasehold improvements. The concern of restaurant managers is keeping their lease and labor costs down. The investment in fixed assets required to run a substantial restaurant is small in comparison to its gross sales. The investment in leasehold improvements for a restaurant many times are sunk costs. They have value only to the end of the lease. It may also be desirable for marketing purposes to substantially alter them prior to the end of their useful life.Here the value is easily established based on what they cost to install. However, they might not be providing future benefits and therefore require replacement before th eir costs have been recognized. A different management problem exists when investment in capital items is large relative to the cost of production or when there are few other opportunities to use the assets for different purposes. Examples are oil refineries and pharmaceutical laboratories. Once the refinery or drug production facilities are constructed, they are not readily usable for any other purpose. There is also little opportunity to make decisions relative to alternative use of these assets.A grocery store location could be altered to become a restaurant or a hardware store, but an oil refinery would cost more to dismantle than it originally cost to construct. These cases raise the question of the value of alternative uses. The accounting principle of recognizing decline in service value through depreciation takes this into account in the concept of salvage value. Salvage value is the value which the asset has at the end of its useful life. The oil refinery would have a nega

The Interpretation of Legal Terms About Contractual

Kavala Institute of Technology MSc in Oil & Gas Technology â€Å"CONTRACT LAW† â€Å"THE INTERPRETATION OF LEGAL TERMS ABOUT CONTRACTUAL OBLIGATIONS OF THE PARTIES IN AN OIL OR GAS EXPLORATION/EXTRACTION CONTRACT† Authors: Andreou Christos Georgiou Manolis Kakanis Iordanis Skarvelas Stathis Supervisor: Pr. K. KalamboukaNovember 2012 ABSTRACT The purpose of this assignment is to identify the contractual obligations of the parties in oil and gas exploration and extraction contracts.The assignment is based on the contract between Cyprus Government and the authorized company as is approved by the Cypriot Parliament and is harmonized to â€Å"Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons† Contents Introduction 4 1. Conditions and requirements for granting authorizations 4 2.General and specific information submitted by the applicant 5 3. Grant of an authorization 5 4. Duration of an authorization for prospection 6 5. Duration of an authorization for exploration 6 6. Relinquishment of area 6 7. Duration of an authorization for exploitation 7 8. Grant of rights to the holders of authorizations 7 9. Transfer of an authorization or assignment of rights arising from an authorization 8 10. Control of a holder of authorization by a third country or a national of a third country 8 11.Work practices 8 12. Directions of the Minister to holders of an authorization in case of contravention of Regulation 11 9 13. Drilling operations10 14. Protection of the environment11 15. Construction and maintenance of installations, pipelines and related equipment12 16. Measurement of hydrocarbons14 17. Authorized officers15 18. Unit development16 19. Records17 20. Reports17 21. Hydrocarbons production records19 22. Obligations in case of termination of an authorization20 23. Confidentiality20 24.Powers of the Court for seizure and confiscation21 25. Abandonment21 26. Abandonment of the well22 27. References23 INTRODUCTION Oil and gas contracts are shaped by national and international laws that relate to common industry transactions. With standardized contracts being used across different jurisdictions, it is important that these legal principles are properly understood. The increasing scarcity of natural resources makes it more, rather than less, likely that legal issues will be tested in the oil and gas sector.The accelerated pace of change in the oil and gas industry make this one of the world’s most challenging and complex sectors in which to understand, draft and negotiate contracts. The legal and regulatory framework of upstream oil and gas industry contracts is constantly changing, therefore it is critical that all lawyers, commercial and contracts managers working in this sector are up-to-speed. OBLIGATIONS Conditions and requirements for granting authorizations ) The authorizations may be granted on such conditions and requirements in order to ensure: a) the proper performance of the activities permitted by the authorization b) the financial contribution in money or a contribution in hydrocarbons c) national security d) public safety e) public health f) security of transport g) protection of the environment pursuant to section 11 and the terms specified in the Regulations made under this Law h) protection of biological and mineral resources and of national treasures possessing artistic, historic or archaeological value i) safety of installations and of workers ) planned management of hydrocarbon resources, such as particularly the rate at which hydrocarbons are depleted or the optimization of their recovery; and k) the need to secure revenues to the Republic. made to the conditions and requirements in the course of the procedure of examining the applications, shall be notified to all interested entities General and specific information submitted by the applic ant ) An application for an authorization for exploration shall contain the following specific information: l) the designation of the area or areas for which an application has been made, and if the application is made in respect of more than one area, the priority assigned to each area m) a detailed description of the exploration programme proposed for the area or areas applied for and its geographical distribution over such area or areas n) the minimum obligations to be undertaken relating to work and expenditure during the exploration period o) a brief note concerning he exploration activities and the effects which are likely to have on the environment, and the measures that the exploration work program intends to take for dealing with p) proposals relating to the training and employment of nationals of the Republic and the minimum expenditures to be incurred to that effect q) proposals relating to the economic terms and conditions required as criteria for the evaluation of the a pplication, such as the financial consideration and/or the sharing of production between the applicant and the Government of the Republic r) any agreement between any persons relating to the manner in which hydrocarbons operations are to be financed and s) any other information as may be required by the Minister or under the applicable model contract or which the applicant wishes the Minister to consider Grant of an authorization 3) The Minister shall negotiate the terms and provisions of the Contract with the selected applicant.In case where the negotiation is successful, the text of the Contract shall be submitted to the Council of Ministers for approval, and thereafter, if approved and signed by both parties, the relevant authorization shall be granted. Duration of an authorization for prospection 4) An authorization for prospection shall be granted for a period not exceeding one year. Duration of an authorization for exploration 5) (1) An authorization for exploration shall be g ranted for an initial period not exceeding three years and may be renewed for up to two terms, each term not exceeding two years, provided that the conditions referred to in paragraph (2) are fulfilled. 2) The authorization for exploration may be renewed, pursuant to paragraph (1), provided that the holder of such authorization has fulfilled all his obligations arising from the authorization and has submitted an application to the Council of Ministers two months prior to the expiry of the current term. (3) The Contract may provide that in case where an appraisal work program with respect to a discovery is in progress and has not been completed at the expiry of the second renewal referred to in paragraph (1), the holder of an authorization may apply to the Council of Ministers for an extension of the exploration period, which, however, may not exceed six months, in case of crude oil discovery and twenty-four months in case of natural gas discovery.In case of natural gas discovery the Council of Ministers, may extend the exploration period for a turnover the twenty-four months, if it deems that such period is necessary to determine whether a commercially viable natural gas market exists or/and is to be created. (4) Notwithstanding the provisions of paragraph (2), where the holder of an authorization has not fulfilled all his obligations arising from the authorization, the Council of Ministers may decide to renew the authorization under such terms and conditions as the Council of Ministers may deem proper to impose. Relinquishment of area 6) (1) Upon each renewal of the authorization for exploration, the holder of an authorization relinquishes at least twenty-five percent (25%) of the initial surface of the area that is included in the authorization granted. 2) Upon expiry of the renewal of the authorization for exploration, as possibly renewed and/or extended pursuant to the provisions of Regulation 9, the holder of an authorization relinquishes all the remainin g part of the area that is included in the authorization granted: Provided that the area to be relinquished under this paragraph shall not include the areas included in an authorization for exploitation. Duration of an authorization for exploitation 7) (1) The duration of an authorization for exploitation for each exploitation area shall not exceed twenty-five years and may be renewed for a period up to ten years, subject to the terms of the Contract. (2) The authorization for exploitation may be renewed, pursuant to paragraph (1), provided that the holder of such authorization has fulfilled all his obligations arising from the authorization and has submitted an application to the Council of Ministers, through the Minister, one year 11 prior to the expiry of the current term. Grant of rights to the holders of authorizations ) (1) The authorization for the prospection of hydrocarbons shall grant to the holder of an authorization the right to prospect for hydrocarbons in the area for which the authorization was granted, (2) The authorization for the exploration of hydrocarbons shall grant to the holder of an authorization exclusive rights to explore for hydrocarbons in the area for which the authorization was granted, under the conditions and requirements of the authorization granted, and in the case of a commercial discovery of hydrocarbons, the right to be granted an exploitation authorization related to such a discovery, in accordance with the provisions of this Law and the Regulations. 3) The authorization for the exploitation of hydrocarbons shall grant to the holder of an authorization exclusive rights to exploit hydrocarbons in the area for which the authorization was granted, under the conditions and requirements of the authorization granted under the conditions and requirements of the authorization granted. Transfer of an authorization or assignment of rights arising from an authorization 9) No holder of an authorization may transfer an authorization or assign the rights arising from an authorization to another entity, except upon the consent of the Council of Ministers, which may be granted if t) it does not endanger national security ) the Council of Ministers is satisfied that an entity to whom the authorization would be transferred or the rights arising from an authorization would be assigned has sufficient technical knowledge, experience and financial resources to secure the proper exercise of the activities of prospecting, exploring for and exploiting hydrocarbons v) the entity to which the authorization would be transferred or the rights arising from an authorization would be assigned undertakes to comply with such other conditions and requirements as the Council of Ministers may deem proper to impose. Control of a holder of authorization by a third country or a national of a third country 10) (1) No entity may, after the grant of an authorization thereto, come under the direct or indirect control of a third country, or a n ational of a third country, without the prior approval of the Council of Ministers. 2) Any holder of an authorization that comes under the direct or indirect control of a third country or a national of a third country without the prior approval of the Council of Ministers, shall commit an offence and shall be liable on conviction to imprisonment for a term not exceeding twelve months or to a fine not exceeding eight hundred fifty four thousand and three hundred Euros or to both such penalties. Work practices 11) (1) Every holder of an authorization shall carry out hydrocarbons operations in a proper, safe and workmanlike manner and in accordance with good oilfield practices. Every holder of an authorization is bound to comply with these Regulations and any other legislation regulating work practices, employers’ obligations, safety and health at work and the rights of employees. (2) Every holder of an authorization is bound to: ) ensure that all materials, supplies, machinery, plant, equipment and installations used by him or by subcontractors comply with generally accepted standards in the international petroleum industry and are of proper construction and kept in good working order b) use the natural resources of the area that is included in the authorization granted as productively as practicable c) prevent damage to producing formations and ensure that hydrocarbons discovered, mud or any other fluids or substances do not escape or be wasted d) prevent damage to hydrocarbon and water bearing strata that are adjacent to a producing formation or formations and prevent water from entering any strata bearing hydrocarbons, except where water injection methods are used for secondary recovery operations or are intended otherwise in accordance with generally accepted international petroleum industry practice e) properly store hydrocarbons in receptacles constructed for that purpose, and not store crude oil in an earthen reservoir, except temporarily in an eme rgency and f) apply the provisions of the Solid and Hazardous Waste Law as regards the hydrocarbon waste Directions of the Minister to holders of an authorization in case of contravention of Regulation 11 12) (1) In cases where the Minister scertains that any holder of an authorization has not acted in accordance with Regulation 13, he may notify such holder of an authorization in writing accordingly and require him to show cause, within a specified time-period, why he has omitted to act in accordance with Regulation 13 (2) Where the holder of an authorization to whom a written notice has been sent, in accordance with paragraph (1), fails within the specified time period, to satisfy the Minister that he has acted in accordance with Regulation 13 or to prove that such omission is justified, the Minister may direct in writing the holder of an authorization to take such measures as may be necessary with a view to ensuring compliance of the holder of an authorization with Regulation 13 (3) Where the holder of an authorization fails to comply with the Minister’s directions pursuant to paragraph (2) a) the holder of an authorization shall be guilty of an offence and shall on conviction be liable to imprisonment for a term not exceeding two years or to a fine not exceeding one million seven hundred eight thousand and six hundred one euro or to both such penalties: Provided that in case of a prosecution against the holder of an authorization in respect of the offence referred to in this subparagraph, it shall be a defense if the holder of an authorization proves that he promptly took all necessary measures in accordance with good oilfield practices in order to comply with the Minister’s directions b) the Minister may take all or any of the measures required by his directions. In such a case, any costs incurred by the Minister shall be payable by the holder of an authorization and shall be collected as a civil debt due to the Republic Drilling operations 3) (1) The holder of an authorization is bound to ensure that the well design and conduct of drilling operations, including its casing, cementing, well spacing and plugging operations, shall be in conformity with generally accepted international petroleum industry practice (2) Every well is identified by a name, number and geographic coordinates, which are shown on maps, plans and similar records which the holders of an authorization are bound to keep. The holders of an authorization must promptly notify the Minister in writing of any change of the above-mentioned particulars (3) At least seven days before commencing any drilling or other work with respect to any well or recommencing any drilling or other work with respect to any well on which work has been discontinued for more than six months, the holders of an authorization are bound to notify the Minister in writing of their intention to do so. Such notice shall contain the following: a) the official name and number of the well ) a description of its precise location by reference to geographical coordinates c) a detailed report on the drilling technique to be followed, an estimate of the time and depth required, the material to be used and the safety measures to be taken and d) a well location report along with the geological and geophysical data and any interpretations thereof, upon which the particular location was selected (4) Where any drilling or other work with respect to any well is discontinued for a period exceeding thirty days, the holders of an authorization shall promptly notify the Minister in writing (5) At least two days before recommencing any drilling or any work, with respect to any well on which work has been discontinued for more than thirty days but for less than six months, the holders of an authorization are bound to inform the Minister in writing of their intention to do so (6) No holder of an authorization may drill a well any part of which is less than two hundred meters from a bo undary of the area that is included in the authorization granted except upon the prior written approval of the Minister and under such terms and conditions as the Minister may deem fit to impose Protection of the environment 4) (1) The holder of an authorization shall ensure that hydrocarbons operations are conducted in an environmentally acceptable and safe manner, consistent with the environmental legislation in force for the time being and the good international industry practice, and shall exercise effective control for that purpose (2) The holder of an authorization is bound to take all the necessary measures in order to: a) minimize any avoidable environmental pollution or damage to the water, the soil or the atmosphere, in relation to hydrocarbons operations b) comply with the provisions of the International Convention on Civil Liability for Oil Pollution Damage, which entered into force internationally on the 19th June 1975, its Protocol hich was signed on the 19th November, 1976 and entered into force internationally on the 8th April, 1981 and the International Convention on Civil Liability for Oil Pollution Damage of 1969 and its Protocol of 1976 (Ratification) and Matters Connected Therewith Law of 1989 (3) If the holder of an authorization omits to comply with the provisions of paragraphs (1) and (2) and any environmental pollution is caused in water, the soil or the atmosphere, the holder of an authorization shall take all reasonable and necessary measures to remedy or eliminate such pollution (4) If the Minister deems that any works or installations erected by the holders of an authorization or any operations conducted by the holders of an authorization endanger or may endanger persons or property of a third-party or cause pollution or harm to the environment, wildlife or marine organisms to a degree which the Minister deems unacceptable, the Minister may require the holder of an authorization to take corrective measures within a reasonable time period specified by the Minister, and to repair any damage to the environment.If the Minister deems it necessary, he may submit a proposal to the Council of Ministers, and the latter may suspend the authorization until the holder of an authorization has taken such corrective measures or has repaired any environmental damage (5) The measures and methods to be used by the holders of an authorization for the purpose of complying with paragraph (2)(a) shall be agreed in consultation with the Minister upon the commencement of the hydrocarbons operations or whenever there is a significant change in the scope or method of conducting hydrocarbons operations. The measures and methods must comply with the international standards applicable in similar circumstances (6)a) Prior to the commencement of any drilling operations, the holder of an authorization shall prepare and submit to the Minister for evaluation and approval, a contingency plan for hydrocarbon leakage and fire.In such a case, the holder of an authorization shall immediately apply the relevant contingency plan b) case of any emergency or accident other than those referred to in subparagraph (a) which affects the environment, the holder of an authorization shall take all reasonable and necessary measures, in accordance with the generally accepted international petroleum industry practice (7) In the event that the holder of an authorization omits to take the measures provided for in paragraphs (1) to (6), within the time-period specified by the Minister, the Minister may direct any action which he deems necessary and require the holder of an authorization to pay any expenses required for the execution of such actionsConstruction and maintenance of installations, pipelines and related equipment 15) (1) The holder of an authorization is bound to maintain in good condition and repair all structures, equipment and other installations used for the hydrocarbons operations and being available in the area that is incl uded in the authorization granted (2) In conducting offshore operations, the holder of an authorization, in accordance with international petroleum industry practice and applicable legislation and regulations, is bound to ensure that constructions and installations to be erected shall: a) be constructed, placed, marked, buoyed, equipped and maintained so that there are safe and convenient channels for navigation b) be fitted with navigational aids and be illuminated between sunset and sunrise in accordance with the provisions of the International Convention for the Prevention of Pollution from Ships of 1973, its Protocol of 1978 and the Resolutions MEPC 14(20) of 1984, MEPC 16(22) and MEPC 21(22) of 1985 c) be kept in good repair and working order and ) not hinder navigation or fishing or cause pollution of the sea or rivers (3) No holder of an authorization may construct, alter or operate a pipeline, pumping station, storage facility or any other related facilities for the conveyan ce or storage of hydrocarbons from the area that is included in the authorization granted except upon his written application and the approval of the Minister (4) Such written application, referred to in paragraph (3) above, shall contain the following information: a) the proposed design and construction of the pipeline, pumping station, storage facility or other related facilities b) the proposed work program and budget and the technical and financial resources available to the holder of an authorization for the construction, alteration or operation of the pipeline, pumping station, storage facility or any other related facilities and c) the proposed route to be followed by the pipeline and the location of any pumping station, storage facility or other related facilities to be constructed, altered or operated (5) a) The Minister may, by Order published in the Official Gazette of the Republic, order the construction of common installations, including pipelines and other transportati on, processing, storage and communication facilities, for different areas included in the authorizations granted, if this is justified by public interest b) The holders of an authorization referred to in subparagraph (a) shall take all necessary measures and use their best efforts to reach agreement on the construction and operation of such common facilities and shall report to the Minister every fifteen days on the progress of their negotiations.If no agreement is reached after the expiration of three months, the Minister may refer the dispute to a mediation procedure (6) a) Where there exists excess capacity, a holder of an authorization may, upon approval by the Minister, enter into an agreement with another holder of an authorization, in order to use such facilities including pipelines and any other transportation, processing, storage and communication facilities b) If no agreement is reached within thirty days for the usage of the installations, the holder of an authorization w ho wishes to enter into an agreement may submit an application to the Minister, who, if he deems it appropriate, shall refer the dispute to arbitration or mediation Measurement of hydrocarbons 6) (1) a) Every holder of an authorization is bo und to obtain, operate and maintain equipment for measuring the volume and quality of any hydrocarbons produced and saved from the area that is included in the authorization granted to him including equipment or other measuring devices of the gravity, density, temperature and pressure b) All such equipment and devices along with their permissible tolerances shall not be installed or used or replaced or altered except with the prior approval of the Minister (2) Such measurement, as referred to in paragraph (1), shall be conducted by the method or methods customarily used in the international petroleum industry. The frequency and the measuring operations must be submitted in advance to the Minister for approval (3) The holder of an authorization s hall give to the Minister two days’ notice of his intention to conduct measuring operations and an authorized officer may be present and inspect such operations (4) Equipment and measuring devices shall be available for nspection and testing at all reasonable times by any authorized officers: Provided that, any such inspection and testing does not obstruct the normal operation of the facilities involved (5) If it is ascertained, following an inspection or test referred to in paragraph (4), that the equipment, devices or procedures used for measurement are inaccurate and exceed the permissible tolerances approved as provided for in paragraph (1), such inaccuracy is deemed to have existed for the entire period since the last such inspection or test, unless it is proved that the inaccuracy has been in existence for a longer or shorter period. The holders of an authorization shall proceed to the appropriate adjustments within thirty days from the date of such ascertainment Author ized officers 7) (1) The Minister may, by notification published in the Official Gazette of the Republic, authorize an appropriate person or persons to act as authorized officers in the application of this Law and the Regulations made there under and the conditions of the authorization (2) An authorized officer may carry out any or all of the following acts: a) enter at all reasonable times, showing his credentials, if so requested, and without prior notice, any building or premises or any other place, in which he has reasonable cause to believe that there is a contravention of the conditions of the holder’s authorization or any other contravention of this Law and the Regulations.Provided that, an authorized officer may not enter any residence without the prior securing of a judicial warrant b) carry out such searches, examinations, tests, inspections, reviews and investigations that may be necessary for the purpose of ascertaining whether there is a contravention of the cond itions of the holder’s authorization or any other contravention of this Law and to inspect, take extracts or copies of documents related to the hydrocarbons operations c) keep copies of any evidence or records which he has reasonable cause to believe that may be required for the purpose of proof in criminal or civil proceedings in respect of any offence pursuant to this Law and copies of any information required to be given to the Minister under section 17, on condition that the provisions of the Processing of Personal Data (Protection of Individuals) Laws are being complied with d) carry out anything that he may deem ecessary and reasonable with a view to securing compliance with the provisions of this Law and the Regulations made thereunder e) enter at all reasonable times, showing his credentials, if so requested and without any prior notice, any building, premises, area, vehicle, vessel or aircraft, and examine any machinery or equipment, which has been, is being or is to be used in connection with the hydrocarbons operations f) enter at all reasonable times, showing his credentials, if so requested and without any prior notice, any building, premises, area, vehicle, vessel or aircraft, and examine any machinery or equipment, which has been, is being or is to be used in connection with the hydrocarbons operations (3) Any holder of an authorization and any person who is the owner, occupier or in charge of any building, premises, area, vehicle, vessel or aircraft, machinery or equipment referred to in subsection (2), is bound to provide the Minister with all reasonable assistance, including the provision of necessary means of transport, for the effective exercise of his powers Unit development 8) (1) For the purposes of this Regulation, â€Å"unit development†, in relation to a hydrocarbon reservoir, means the operations for the recovery of hydrocarbons being carried on or, to be carried on in an area, for which an authorization has been grante d and in which there is part of a reservoir, that falls into another area that is included in an authorization granted to another person by the Republic or other state and in which operations for the recovery of hydrocarbons are carried on or will be carried on (2) No holder of an authorization may enter into an agreement in writing with another person for, or in relation to, the unit development of a hydrocarbon reservoir except upon the submission of such an agreement to the Minister and his written approval (3) Subject to the provisions of paragraph (2), the Minister may, either on his own motion or following an application made to him in writing by a holder of an authorization in whose licensed area there is a part of a particular hydrocarbon reservoir, for the purpose of securing the more effective and productive recovery of hydrocarbons from that hydrocarbon reservoir, direct any such holder of an authorization whose licensed area includes part of that hydrocarbon reservoir to enter into an agreement in writing within a specified period or or in relation to the unit development of the hydrocarbon reservoir (4) Where a holder of an authorization, omits to enter into the agreement referred to in paragraph (3) within the specified period or enters into the agreement referred to in paragraphs (2) and (3) but omits to submit it to the Minister for approval, the Minister may, by notice served on the holder of an authorization, request the submission, within a specified period, of an action plan for, or in relation to, the unit development of hydrocarbons (5) In case the hydrocarbon reservoir extends beyond the median line that separates the Exclusive Economic Zones of the Republic and a neighboring country, the unit development shall be governed by the relevant international agreements Records 9) Every operator is bound to keep at his office in the Republic accurate records in respect of the area that is included in the authorization granted, containing full p articulars of the following a) the areas in which any geological or geophysical work has been carried out b) accurate geological maps and plans, geophysical records and interpretations thereof c) drilling, operation, deepening, plugging or abandonment of wells d) the strata and subsoil through which wells are drilled e) the casing inserted in wells and any alteration to such casing f) any hydrocarbons, water and other economic minerals or dangerous substances encountered g) such other matters as the Contract may provide or as the Minister may deem reasonably necessary to require by notice in writing served on the holder of an authorization Reports 0) (1) The holders of an authorization are bound to inform the Minister of all major developments in relation to the course of hydrocarbons operations (2) Without prejudice to those mentioned in paragraph (1), the holders of an authorization shall submit to the Minister the following particulars a. as soon as possible after the same are ac quired or prepared i. copies of all geological, geophysical and other technical reports, well logs, maps, diagrams, magnetic tapes, electronic and other stored data, in any form, reports and interpretations which have been prepared by or for the holder of an authorization and ii. representative geological samples including cuts of core and cutting samples, properly labeled, from all wells drilled b. at half-yearly intervals commencing from the completion of six months from the grant of an authorization iii. summary of all geological and geophysical works carried out and the results thereof iv. a summary of all drilling operations and the results thereof and v. a list of maps, reports and other geological and geophysical data prepared by or for the holder of an authorization, in respect of the period concerned c. every year and within sixty days commencing from the completion of one year from the grant of an authorization: vi. a report describing the results of all hydrocarbons opera tions carried out by the holder of an authorization within the year concerned and vii. estimates, if available, of economically recoverable reserves of crude oil and natural gas at the end of the year concerned d. ummaries of exploration wells drilled, including lithological groups and hydrocarbons zones, within six months of completion of drilling or, in the case of information that cannot be reasonably obtained in that period, as soon as possible thereafter e. any other available information, data, reports, assessments and interpretations related to the hydrocarbons operations as the Minister may reasonably require (3) No holder of an authorization may transport outside the Republic originals of records, magnetic tapes, electronic and other stored records, in any form, except upon the prior approval of the Minister, which may be granted if the Minister is satisfied that f. the magnetic tapes or other data which will be processed or analyzed outside the Republic shall be exported o nly if the originals or copies shall remain in the Republic and g. n case where such originals of records, magnetic tapes, electronic and other stored records, in any form, are exported outside the Republic, the said originals shall be returned to the Republic within a reasonable time-limit (4) Ownership of all original information and data referred to in this Regulation shall vest in the Republic (5) The Minister may have access to the originals of all records, magnetic tapes, electronic and other stored records in any form, and may, upon request, obtain two copies thereof from the holder of an authorization free of charge (6) The holder of an authorization shall keep originals beyond the termination of the Contract for a period and under such terms prescribed in the Contract Hydrocarbons production records 1) (1) The operator is bound to keep during the validity of the Contract at his office in the Republic accurate production records containing full particulars of the following: w) the gross quantity of any crude oil and natural gas produced and saved from the area that is included in the authorization granted x) the grades, gravity and composition of any crude oil produced and the composition of any natural gas produced y) any quantities of crude oil, natural gas and sulfur, in any form, or any other minerals, gases, liquids or solids disposed of by way of sale or otherwise, the consideration received, the quantity disposed of and the name and address of the natural or legal person to whom any such quantity was disposed of z) the quantity of crude oil, natural gas and other liquids or gases injected into a geological formation {) the quantity of crude oil and natural gas consumed for drilling and other development and production operations, other than the quantity referred to in Sub paragraph (d), and the quantity of crude oil and natural gas consumed in pumping to field storage, in the refineries of the Republic or up to the delivery point |) the quantity of crude oil refined by or on behalf of the holder of an authorization in the Republic, if any }) the quantity of natural gas treated in the Republic by or on behalf of the holder of an authorization for the removal of liquids and liquefied petroleum gases and the quantity of butane, propane and any other liquids, gases or any solids obtained therefrom ~) the quantity of natural gas flared or vented and ) any other information as the Contract may provide or the Minister may reasonably require in writing by the holder of an authorization Obligations in case of termination of an authorization 22) In case of termination, revocation, suspension, cancellation or expiration of an authorization, or upon relinquishment of any part of the area that is included in the authorization granted, the holder of an authorization is bound, within seven days, to deliver to the Minister, in relation to the area, copies of such documents or material not previously delivered.The Minister may, by notice in writing, require the holder of an authorization to deliver any other data as he may reasonably deem necessary Confidentiality 23) (1) Subject to the provisions of section 20 of the Law, all returns, reports, plans, data and other information submitted to the Minister pursuant to these Regulations shall be treated as confidential within the meaning of section 13 of the Statistics Law, and shall not be disclosed to third parties prior to the relinquishment of the area to which the above-mentioned particulars relate or prior to the expiry of the exploration period if such area is not sooner relinquished, unless the Contract provides otherwise (2) Notwithstanding the provisions of paragraph (1) ) any surface geological maps and interpretations may be utilized at any time by the competent authorities of the Republic for incorporation into official maps b) annual statistical information may be published at any time by the Republic in a form which does not disclose the operations of any particular holder of an authorization c) the Republic may communicate such returns, reports, plans, data and other information at any time, if deemed necessary, to professional consultants, lawyers, legal advisers, accountants, underwriters, creditors, government services and organizations and public corporations (3) Without prejudice to the terms of the Contract, no holder of an authorization may publish or communicate any returns, reports, plans, data and other information compiled, received, kept or submitted pursuant to these Regulations or the terms of the Contract except upon the prior written approval of the Minister (4) Notwithstanding the provisions of paragraph (3), the holders of an authorization may, without the prior written approval of the Minister, communicate such returns, reports, plans, data and other information available, to professional consultants, lawyers, legal advisers, accountants, underwriters, creditors and companies in which the holders of an authorizat ion maintain the majority in shares, or appoint the majority of members of the board of directors as well as to services and organizations and public corporations of the Republic that shall be entitled to require he disclosure of such information (5) Any notification or communication made by the Minister or a holder of an authorization pursuant to this Regulation shall be made on condition that the information so notified or communicated shall be deemed to be and treated as confidential by the natural or legal person that is the recipient of such information Powers of the Court for seizure and confiscation 24) The Court may order that any quantity of hydrocarbons that has been obtained as a result of the commission of an offence, as well as any machine, equipment, vehicle, ship or aircraft and also any construction that has been used during the commission thereof shall be confiscated and/or seized. Where the confiscation of hydrocarbons is not possible, the Court may order that the person committing the offence shall pay a fine to at least the value of the quantity of the hydrocarbons that have been unlawfully obtained Abandonment 5) (1) Unless the Minister deems otherwise, on expiry of the time-period or termination of an authorization, the holder of an authorization is bound to: ) remove all equipment, installations, structures, plants, appliances and pipelines from the area in accordance with the abandonment plan provided by the Contract ) perform all necessary site restoration activities in accordance with good international petroleum industry practice and take all other necessary measures to prevent hazards to human life or to the property of others or the environment (2) For the purpose of complying with the provisions of this Regulation, the Minister may, at any time, in accordance with the terms of the Contract, require the holders of an authorization to submit a guarantee, for an amount determined by the Minister, or in the alternative, to establish a reserve for future estimated abandonment and site restoration costs Abandonment of the well 6) (1) Prior to the abandonment of any well, the holders of an authorization are bound to inform the Minister in writing of their intention to do so, in the case of a producing well, at least thirty days before the abandonment and, in the case of any other well, at least two days before the abandonment. Such written notice shall contain a detailed plan and a time-schedule for the abandonment and plugging of the well. (2) Subject to the terms of the Contract, the holder of an authorization may, upon the expiration of the relevant period specified in the notice referred to in paragraph (1), or upon receipt by the holder of an authorization of the written approval of the plan by the Minister as provided for in paragraph (1), whichever is earlier, commence the abandonment operations in relation to such well. (3) The holder of an authorization is bound to: plug such well with a view to avoiding p ollution and possible damage to the reservoir and, unless the Contract otherwise provides or the Minister otherwise decides, remove all equipment, materials and facilities relating thereto ) ensure that cemented strings or other forms of casing shall not be withdrawn except with the prior written approval of the Minister and ) permit an authorized officer to inspect such abandonment operations. REFERENCES Marc Hammerson, Upstream Oil and Gas, July 2011 Republic of Cyprus, The hydrocarbons (prospection, exploration and exploitation) regulations, 2007and 2009 Republic of Cyprus, The hydrocarbons (prospection, exploration and exploitation) law, 2007