Discounted value of expected net receipts
Discounted value is simply defined as the projected cost of money flow in a particular project taken from the current value through discounts made to the initial capital used in a project. Basically, it is the current cost of potential cash flow of a certain project. On the other hand, expected net receipts are the potential receipts which result from deductions of current costs. This can also be described as the difference between the present value and future value. The concept of discounting for expected receipts can be used in many ways to perform different functions (Kieso 23). Therefore, the two phrases entirely mean deduction of a precise interest value and changing the money value according to time.
Discounted value of net receipts
Discounted value is calculated by subtracting the current value of cash from the future expected amount. For expected receipts, the discount is termed either as the fee deducted from the amount of cash expected in the future. This enables the management to determine the value of the company based on its assets. The calculation of discounted value involves several steps (Kieso 23). The first procedure requires the recognition of money available for use to settle debts through acceptable techniques. This gives the resulting adjusted profit. The second procedure requires making the choice of interest needed to finance a project. This involves finding the interest from the functioning capital and fixed assets. Finally, the total amount is calculated to give the value of the company.
Foundation of Plastik’s patent Valuation
Valuation of patents in plastic companies is best described on the basis of discounted value. This is done on the expected net receipts received by the management of the company. The company is supposed to get the difference in the amounts of payments made for transactions and receipts of cash made from their sale. This enables the company to compute the interests undergone. Since plastic companies have the aim of fulfilling their project, this approach is well placed. Valuation is made possible because the company needs to realize its profits in a specified duration of time (Kieso 24). This method is well acceptable in accounting because the liabilities are differentiated from the assets.
Other methods of valuation
There are many valuation methods in existence apart from discounted value. The purposes of the valuation methods are to enable the company to administer its transactions in the open market and necessary purchases made within the transactions to attain the value of an organization in the market. Other methods of valuation include calculation of capitalization dividends to find out the amount of dividends paid by the company. To add on this, we have liquidation and replacement value methods. These approaches involve the use of assets to valuate a firm (Kieso 25). Liquidation is done by subtracting the liabilities from all assets under liquidation while the replacement is achieved by subtracting liabilities from possible values of replaced assets. The best method for use in Plastik Company is the capitalization method where the organization is valued by finding out the necessary return rate for business operation. The rate is divided by the earnings, and the result shows the natural value of the organization. Proper choice of a reliable method is done from information acquired in the market sales.
Litigation of infringements
The company needs to recognize the infringement procedures started on patents in opposition to rival companies. Since the rival companies have violated the law by infringing Plastik’s patents. The company should ensure the law is followed to avoid the rival companies from infringement of original products produced by Plastik Company. In the next financial statement, Plastik Company should include the litigation and record them in the discounted value of the company’s receipts.
Kieso, Donald and Warfield, Teryy. Intermediate accounting. New York: Wiley and Sons. 2005. Print.