| Recorded Dollar Transaction (500,000 barrels).................... | $2.0 million | |
| Adjustments | ||
| Add: assumed liabilities.................................... | $1.0 million | |
| substract: working capital.................................. | $0.2 million | |
| Effective Purchase Price of Asset................................. | $2.8 million | |
| Add: present value of taxes, royalty transfers.............. | $0.6 million | |
| Value of Assets.................................................. | $3.4 million | |
| Substract: value of associated capital..................... | $0.8 million | |
| Value of Petroeum Reserve......................................... | $2.6 million |
a
This methodology is not followed in the conventional accounts. For instance, in valuing the stock of cars, we do not subtract tax credits, nor do we add in future liabilities such as property taxes. Similarly, to the extent that royalties are regarded as a sharing of profits (like dividends), they should not affect the value of an asset; to the extent that royalties are actually a deferred part of the purchase price, they can be capitalized to increase the value of an asset.