Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Abandonment

What it is:

In the business world, abandonment refers to the purposeful surrender of ownership of an asset.

How it works (Example):

For example, let's assume that Company XYZ owns an oil processing facility in Nigeria. The government has become very unstable there, and because the company cannot lift up and move the facility, it abandons the property and leaves the country. In doing so, it may be able to recoup some of the costs via tax deductions or other measures, but Company XYZ has surrendered its ownership of the facility.

People who trade commodities and other items using forward contracts also might be able to abandon the underlying assets by undertaking another trade that avoids having to take delivery of the assets.

Why it Matters:

Abandoning assets is not as easy as abandoning an empty candy wrapper in the street. Companies often have to calculate the abandonment value of the assets they have left behind or that no longer have financial value, and usually they must get permission from various government entities to let go of physical assets. Financial Accounting Standards Board (FASB) Statement 71 provides guidance about how companies are to account for abandoned property.