Accounting principles and practices

Accounting

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Re: ICN's amd Merck's Capitalization and Long Lived Assets

ICN Pharmaceuticals, Inc. And Merck & Co., Inc. And Subsidiaries are both pharmaceutical companies centered into research, developing, manufacturing and marketing medical products. Both are equipped to create mission and vision, perform operating activities and other extraordinary activities such as investing and financing. In the following section, we will be particularly tackling the activities of capitalization of cost and different methods on how to bring it to its realizable or book amount.

ICN and Merck, being stable and have ability to continue as a going concern, are inclined to invest to assets that are going to be beneficial to them in the long run. Such investments, if used in normal operations can be classified as capitalizable accounts, also known as Property, Plant and Equipment, or Goodwill and intangible assets acquired in business combination or other business activities. The cost of property, plant and equipment is recognized if, and only if, it is probable that future economic benefits associated with them will flow to the entity and the cost of an item can be measured reliably. Its cost is initially recorded at cost. Meanwhile, Goodwill and other intangible assets are initially measured at cost, which is the excess of cost of the business combination over acquirer's interest in the net fair value of identifiable assets, liabilities and contingent liabilities. It is then measured at cost less any accumulated impairment loasses.

Depreciation methods used in allocating cost of capitalizable amounts are staright-line, acceleration or double declining method, as well as unit of production method. Acceleration or double declining method is computed by allocation larger portion of cost to earlier period and smaller portion in the later periods. Meanwhile, units of production method is computed using the on units of use rather than time. For example, particular machinery is depreciated based on the estimated number of units the Company expected to produce. Both method are more complex compared to straight-line method of depreciation.

Considering that cost of an item will not have the same value compared at acquisition, an accounting method is created to realize an asset's valuation during the period. For property, plant and equipment, as well as goodwill and other intangible assets, the method used to bring down the asset's cost to its realizable value is through deprecation. Depreciation is a process of allocating its cost, excluding salvage value, over its useful life not exceeding the Company's estimated business life. Salvage value can be defined as the worth of an asset upon its maximum useful life of an asset.

As of December 31, 2001 and 2000, the property, plant and equipment cost and accumulated depreciation are as follows:

ICN Pharmaceuticals, Inc.

A in thousands)

Merck & Co., Inc. And Subsidiaries in thousands)