Accounting for Assets and Depreciation in Your

Accounts

This article was written by David Colom of Platinum Umbrella the executive
management and payroll umbrella service for premium contractors.

Introduction
Assets you purchase for your company, like computers or furniture, will lose their value
over time, or in accounting terms ‘depreciate’.

This article explains how assets and depreciation are dealt with in your company
accounts and the effect they have on your bottom line.

What is a ‘Company Asset’

In general terms, an item is considered a company asset, rather than an expense if it
has an ongoing use from year to year.

Some typical assets your might purchase:

 Computers, printers, software.

 Office furniture.

 Equipment: telephones etc.

What is depreciation?
Depreciation is used to write off the cost of an asset over its useful lifetime.

It does not reflect the passing of actual money but is a measure of the "cost to the
company" of the use and ownership of the asset for the period under review.

The ‘net book value’ (cost less depreciation) of the assets, as shown in the accounts,
reflects the "value to the company" rather than the "market value".

For example, a company might buy a computer which provides excellent service for
three years. It should therefore be written off (or ‘depreciated’) over the three year
period. The market value of the computer might however be negligible after six
months usage.

Calculating depreciation
During each accounting year, a figure of depreciation will be calculated which
represents an approximation of the cost to your business of owning the asset.
For example, a computer expected to last three years might be written off on a 33.3%
‘straight line’ basis. This means its entire cost would be written off in equal amounts
over a three year cycle.

Accounting for assets and depreciation

Assets are treated differently to expenses in your company accounts.

In your company accounts, assets are ‘capitalised’ and included in the company
balance sheet as assets, rather than written off to profit and loss account as expenses.

Unlike valid expenses, which are 100% tax deductible, depreciation is treated
differently. The company cannot obtain the tax relief on the depreciation charges.

Instead the company can claim a ‘capital allowance’ on the cost of the equipment.

These capital allowances are set each year in the budget and vary depending upon the
type of equipment.

The amount of depreciation charged in your company accounts will nearly always be
different to the amount of capital allowances claimed, so that your accounts company
profit will differ from your corporation tax profit.

An example
A company purchases a computer at a cost of £2k (excluding VAT) which is expected
to have a useful life of three years.

In the company accounts, the balance sheet would include the asset at its cost of £2k.

In the company’s profit and loss account, depreciation would be calculated at one third
of £2k, being £667 and this figure would be included with the company expenses,
thereby reducing the bottom line net profit for the year.

In the company’s corporation tax computation, the corporation tax would be computed
on the basis of the company’s net profit after making certain adjustments, one of
which would be to add back the depreciation of £667, because it is not tax deductible.

A capital allowances computation would be computed which would show, in the year of
purchase of the computer, a 40% initial capital allowance to be deducted from the
taxable profit. 40% of £2k = £800 allowance, which is actually greater than the
depreciation charge in the accounts.

In the second year, a writing down capital allowance would be given at 25% on the
reducing balance, i.e. £2k minus £800 = £1,200 x 25% = £300. In year two, the
 capital allowance of £300 is therefore less than the depreciation charge of £667 in the
accounts.

Contractors responsibilities as director

As a contractor you need to record the purchase of assets in your company records.
Your accountant will usually have a schedule of fixed assets on their file.

Such a schedule would also be used to prepare the corporation tax computation,
including capital allowances claims and would need to be made available to an
Inspector of Taxes if any query arose in respect of corporation tax and capital
allowances.

Market search company(biosciences cooperation)

Martek Revises Depreciation Accounting Policy

No Impact to Cash Flows; Fiscal 2006 and Q1 2007 Net Income to be Restated for Increased
Depreciation Q2 2007 Revenues to Exceed Prior Guidance; Q2 2007 EPS Still Within Prior Guidance
Range after Additional Depreciation Charge
COLUMBIA, Md., April 24, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Martek Biosciences
Corporation (Nasdaq: MATK) today announced that it will be restating its financial results for fiscal 2006
and first quarter of fiscal 2007 (1st Qtr 07) following a review of its policy surrounding depreciation on assets
held for future use. The Company also announced its projected revenue and net income results for the
second quarter of fiscal 2007 (2nd Qtr 07), which will end April 30, 2007.

As a result of its review, the Company will correct its depreciation accounting policy and record depreciation
for all assets when those assets are available for use. Under the prior policy, assets were depreciated only
when they were in productive service. The estimated effect of this revision to policy, which impacts only the
Company's assets held for future use, is an additional depreciation charge of between $4.0 million and $4.5
million in fiscal 2006 and between $1.6 million and $1.8 million in the 1st Qtr 07. These charges will be
reflected as additional cost of sales in both periods and will serve, on an after-tax basis, to lower net income
in fiscal 2006 by between $2.6 million and $2.8 million ($0.08 to $0.09 per diluted share) and to lower net
income in the 1st Qtr 07 by between $1.0 million and $1.2 million ($0.03 to $0.04 per diluted share). All
adjustments resulting from this revision to policy are non-cash in nature and will have no effect on the
Company's cash flows or business operations. The Company is working to finalize the precise adjustments
necessary to its historical financial statements and expects to file an amended Form 10-K and amended
Forms 10-Q with the SEC within two weeks.

Steve Dubin, Martek's Chief Executive Officer, said, "Our historical accounting treatment for depreciation of
assets held for future use reflected our interpretation at the time of the relevant accounting principles. This
policy was disclosed by the Company in its audited financial statements for the years ended October 31,
2005 and 2006, which included unqualified opinions from its independent registered public accountants, as
well as in all relevant quarterly filings with the SEC. Upon review, the Company has determined a need to
revise our depreciation policies and to restate our historical financial statements. The depreciation matter
has no effect on the Company's cash flows and does not impact Martek's growth fundamentals."

Projected Second Quarter Results

For the 2nd Qtr 07, the Company now expects total revenues to be between $75.5 million and $77 million,
an increase from its prior guidance of between $73 million and $75 million. The increase in projected second
quarter revenues is primarily due to growth in sales to Martek's international infant formula customers.

The Company's gross margins for the second quarter will now include depreciation on assets held for future
use. This additional non-cash charge, which will be reflected as additional cost of sales in the Company's
financial statements, is estimated to be between $1.6 million and $1.8 million. With these additional costs,
the Company estimates its gross margin percentage to be between 34% and 35% for the 2nd Qtr 07. As
previously disclosed, the Company expects its gross margins to improve over the last six months of fiscal
2007. Despite the additional depreciation expense, Martek expects these margins to gradually improve over
the remainder of fiscal 2007 with fourth quarter margins now projected to be approximately 38%.

On an after-tax basis, the Company estimates the impact of the additional depreciation expense on the 2nd
Qtr 07 to be between $1.0 million and $1.2 million or $0.03 to $0.04 per diluted share. Including this charge,
Martek's net income for the 2nd Qtr 07 is now projected to be between $4.8 million and $5.2 million and
diluted earnings per share are estimated to be between $0.15 and $0.16, which is within the range of the
Company's prior guidance of $0.15 to $0.18 per diluted share.

The Company plans to announce its second quarter earnings on June 6, 2007.

Further Background on Revised Depreciation Accounting

In fiscal 2005, the Company completed the extensive expansion of its Kingstree, S.C., production plant. The
primary reasons behind this expansion were to build capacity sufficient to enter into long-term supply
agreements with large food and beverage companies and to achieve the Company's revenue and market
share objectives in its target markets. While this expansion was critical to Martek's future growth, it has
resulted in excess production capacity. Specifically, as of October 31, 2006 and January 31, 2007, fixed
assets with values totaling $90.7 million and $94.3 million, respectively, were classified as "held for future
use."

In establishing its accounting policies, Martek undertakes a process that includes fully researching the
applicable generally accepted accounting principles ("GAAP") that govern each such policy, reviewing
prevalent industry practices, and discussing the proposed policy with its independent registered public
accountants prior to implementing such policy. With respect to its depreciation accounting policies, the
Company followed these procedures and based its policies on the principles set forth in Accounting
Research Bulletin No. 43 and FASB Statements of Financial Accounting Concepts Nos. 5 and 6. That is, as
articulated by these elements of GAAP, the cost of an asset should be spread over the periods during which
services are obtained from the asset's use, and this depreciation expense should be recognized
commensurate with the consumption of the asset. Accordingly, Martek adopted a policy to commence the
depreciation of an asset when it was placed in service, to suspend depreciation of assets out of productive
service and to use the straight-line method to calculate depreciation expense during an asset's use. This
policy was disclosed by the Company in its audited financial statements for the years ended October 31,
2005 and 2006, which included unqualified opinions from its independent registered public accountants, as
well as in all relevant quarterly filings with the SEC.

In March 2007, the Company again reviewed this depreciation policy in order to ensure that this policy was
appropriate under GAAP. While this review was ongoing, the Company also received a comment letter from
the staff of the Division of Corporation Finance of the SEC inquiring about the Company's depreciation
policies. After carefully considering the relevant issues, including discussion with the Company's auditors,
the Company concluded that it is appropriate to record depreciation expense when an asset is available for
use and that depreciation expense should be recognized evenly over the life of the asset without regard to
whether the asset is in use.

This correction to Martek's accounting policy affects only the Company's depreciation of assets "held for
future use." Specifically, the correction requires the depreciation of such assets when they are initially
available for use, and depreciation will continue over the useful life of the asset whether in use or not. The
effect of the application of this depreciation accounting is to lower net income in fiscal 2006 by between $2.6
million and $2.8 million ($0.08 to $0.09 per diluted share) and to lower net income in the first quarter of fiscal
2007 by between $1.0 million and $1.2 million ($0.03 to $0.04 per diluted share). The Company's financial
statements for fiscal 2006 and the 1st Qtr 07 will be restated to reflect the foregoing. All adjustments
resulting from this change are non-cash in nature and will have no effect on the Company's cash flows or
business operations.

The Company has filed a Current Report Form 8-K on April 24, 2007 which includes additional information
regarding the aforementioned restatement matter. Please refer to that report for further details.

General

Sections of this release contain forward-looking statements concerning, among other things: (1) our
expectations regarding the effects of the Company's revised depreciation policy on the net income of fiscal
2006 and first quarter of fiscal 2007; (2) our expectations regarding the effects of the Company's revised
depreciation policy on cash flows from operations; (3) our statements regarding specific revenue and income
expectations for the second quarter of fiscal 2007; and (4) our statements regarding specific gross margin
expectations for the remainder of fiscal 2007. The forward-looking statements noted above are based upon
numerous assumptions which Martek cannot control and involve risks and uncertainties that could cause
actual results to differ. These statements should be understood in light of the risk factors and cautionary
statements set forth herein and in the Company's filings with the Securities and Exchange Commission,
including, but not limited to, Part I, Item 1A of the Company's Form 10-K for the fiscal year ended October
31, 2006 and other filed reports on Form 10-K, Form 10-Q and Form 8-K.

About Martek

Martek Biosciences Corporation (NASDAQ:MATK) is a leader in the innovation and development of omega-3
DHA products that promote health and wellness through every stage of life. The Company produces
life'sDHA(TM), a vegetarian source of the omega-3 fatty acid DHA (docosahexaenoic acid), for use in foods,
infant formula and supplements, and ARA (arachidonic acid), an omega-6 fatty acid, for use in infant formula.
For more information on Martek Biosciences, visit www.martek.com.

CONTACT
Kyle Stults
Investor Relations
(410) 740-0081
kstults@martek.com

Cassie France-Kelly
Media Relations
(443) 542-2116
cfrancekelly@martek.com

SOURCE Martek Biosciences Corporation

Kyle Stults, Investor Relations, +1-410-740-0081, kstults@martek.com ,

or Cassie
France-Kelly, Media Relations, +1-443-542-2116,
cfrancekelly@martek.com , both of
Martek Biosciences Corporation
http://www.martek.com/

Annual report 2006