Page 17 - RosboroAR2020

Property, plant & equipment - Properties
are recorded at cost. Additions, betterments and replacements of major units of property are capitalized. Maintenance, repairs, and minor replacements are charged to expense as incurred. Depreciation is computed using the straight-line method.
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash ows expected to be generated by the asset. If an asset is considered to be impaired, the loss recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Timber assets - Timber assets are comprised of timber rights under lump-sum contracts, timber deposits, prepaid logging roads and other timber-related assets. The Company acquires and owns rights to harvest timber under two principal types of contracts:
(1) “Lump sum,” requiring payment of a stipulated total amount for all timber on the speci ed tract. These contracts are treated as timber owned and included along with related imputed interest charges in depletion totals in the nancial statements.
(2) “Fixed price per thousand board feet cut,” requiring the Company to cut and remove all merchantable timber on the speci ed tract and to pay for it at the contract rate as cut.
The Company accounts for timber acquired under
“lump sum” contracts as timber owned and the related obligation as a liability. The Company classi es its investment in timber properties expected to be harvested in the next scal year as current based on the expiration of contracts. The “ xed price per thousand board feet cut” contracts, which require harvesting at various times over the next several years, are considered purchase commitments. As of December 31, 2020, the Company
is committed to purchase approximately 54.5 million board feet of timber at an estimated stumpage cost of $13,200,000.
Contract depletion and road amortization are charged to operations as timber is harvested with rates being determined with reference to the cost of timber and roads, and the related estimated recoverable timber volumes.
Goodwill- Goodwill represents the difference between the fair value of the consideration transferred (purchase price) for the acquired business and the fair value of the identi able tangible and intangible net assets recognized in the acquisition. The Company’s accounting policy is
to only recognize those identi able customer-related intangible assets that are capable of being sold or licensed independently from other assets of the acquired business and precludes recognizing noncompetition agreements resulting from transactions occurring in
2019 and later. Fair values attributable to such items
are subsumed into goodwill. Goodwill is amortized on
a straight-line basis over ten years and is assessed for impairment if an event or circumstances indicate that
the fair value of the entity may be less than its carrying amount. A goodwill impairment loss is recognized to the extent that the carrying amount of the entity including goodwill exceeds its fair value. Amortization expense totaled $2,248,000 and $2,201,000 for the years ended December 31, 2020 and 2019, respectively. Goodwill amortization expense will total $2,248,000 each of the next ve years.
Income taxes - Income taxes are accounted for
using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the nancial statement and tax basis of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company has adopted authoritative guidance that clari es the accounting for uncertain income tax positions by prescribing a minimum probability threshold that a tax position must meet before a nancial statement bene t is recognized. The minimum threshold is de ned by the guidance as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the
position. The tax bene t to be recognized is measured as the largest amount of bene t that is greater than
50% likely of being realized upon ultimate settlement. The Company has evaluated its tax positions, and no signi cant uncertain amounts have been recorded for income taxes in the accompanying consolidated nancial statements.
Fair value measurements - The Company has adopted Financial Accounting Standards Board (“FASB”) authoritative guidance that de nes fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance is currently incorporated in FASB Accounting Standards Codi cation Section 820 (“ASC 820”).
ASC 820 de nes fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are signi cant to the fair value of the assets or liabilities.
The fair values of the Company’s nancial instruments have generally been determined to fall within Level 2 of the valuation hierarchy.
17 — ROSBORO ANNUAL REPORT 2020