What is Abandonment?
In the business world, abandonment refers to the purposeful surrender of ownership of an asset.
How Does Abandonment Work?
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 Does Abandonment Matter?
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.
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