It is my understanding of GAAP/FASB that the value of real estate is listed on the asset side of a balance sheet at either the purchase price or the cost of land plus construction costs if building improvements were made to bare land. Then depreciation (only of the building, not the land) can be period expensed over a lengthy straight line period (40 years?), and the value of the property is reduced on the balance sheet by the depreciation amount.
Right..
This then reduces the cost basis of the property such that the capital gain from a subsequent sale of the property would be the sale price less the depreciation reduced cost. Is most of this true?
This is correct, from a tax perspective, and for the most part, for accounting purposes, too. But it is important to keep the two separate.
If so, and the straight-line depreciation is over 40 years, then a $30 million dollar write-down would imply that the Scotts Valley Campus buildings cost somewhere in the vicinity of $1.2 billion dollars to build, which of course is absurd.
A "write-down" implies something different from depreciation. In particular, this write-down is presented as part of "Total restructuring, acquisition and non-recurring charges", which might indicate the write-down had to do with some discontinued segment of operations. While I'm just guessing here, I'd suspect the write-down pertains to some portion of the facility that is no longer in use or has otherwise been decommissioned. Perhaps it is space that housed operations which are no longer active.
At any rate, this charge does not relate to depreciation of the existing facility (this would be operating expense), nor is it an attempt to bring the "book value" of the property into agreement with a "fair market value" (this is not permitted).
We probably won't know until the audited statements are out... |
