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Net Investment: A Comprehensive Guide to Its Legal Definition
Definition & Meaning
The term net investment refers to the total legitimate original cost of a project, including expenses for any additions or improvements made to it. This total is adjusted by subtracting certain accumulated items that have been funded through earnings exceeding a fair return on the investment. These deductions include:
Unappropriated surplus
Credit balances from current depreciation accounts
Surplus or income set aside for amortization, sinking funds, or similar reserves
It is important to note that costs do not include funds received as donations from states, municipalities, individuals, or other sources.
Table of content
Legal Use & context
Net investment is commonly used in the context of federal regulation and development of power, particularly in the energy sector. It plays a crucial role in determining the financial viability of utility projects and ensuring that returns on investments are fair and equitable. This term is relevant in areas such as:
Energy regulation
Utility finance
Infrastructure development
Users can manage related forms and processes through tools like US Legal Forms, which provide templates drafted by legal professionals.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A utility company invests $1 million in building a new power plant. If they later spend an additional $200,000 on improvements, their gross investment would be $1.2 million. If they have $100,000 in unappropriated surplus, their net investment would be $1.1 million.
Example 2: A municipality receives a $50,000 donation for infrastructure improvements. This amount would not be included in the net investment calculation.
Relevant laws & statutes
The definition of net investment is primarily referenced in the federal regulation under 16 USCS § 796 (13), which outlines the financial aspects of energy projects. This statute provides the framework for calculating net investment in regulated industries.
Comparison with related terms
Term
Definition
Difference
Gross Investment
The total amount spent on a project without deductions.
Net investment accounts for deductions like surplus and depreciation.
Capital Expenditure
Funds used by a company to acquire or upgrade physical assets.
Net investment specifically refers to the costs associated with regulated projects.
Common misunderstandings
What to do if this term applies to you
If you are involved in a project that requires calculating net investment, consider the following steps:
Gather all relevant financial records, including original costs and any improvements.
Identify any accumulated surpluses or depreciation balances that may affect your calculations.
Consult with a legal professional if you are unsure about the calculations or implications.
Explore US Legal Forms for templates that can assist you in documenting your investment properly.
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