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| Subject: Re: Deferred development expenses.Proton accelerated amortisation | |
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Author: anonymous |
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Date Posted: 02:43:06 10/07/02 Mon In reply to: anonymous 's message, "Deferred development expenses.Proton accelerated amortisation" on 22:47:07 10/05/02 Sat N.E. Renton has to say in Understanding the Stock Exchange. Page 183. Goodwill. -------------------------------------------------------------------- 972) A compulsory accounting standard (ASRB 1013), entitled "Accounting for Goodwill", applies to companies for financial years ending on or after the 19th of June 1988. Companies purchasing assets which fall within the general scope of this standard are expected to write goodwill off out of their profits after tax over a 20 year maximum period. 973) As a result, companies in their balance sheets are forced to set out some meaningless figures and their published profit or loss figures can be positively misleading. Investors need to make their own adjustments in order to overcome this statutory piece of nonsense. Shareholders who take a company's reports at face value may well be induced to let their shares go too cheaply. 974) As mentioned in para. 812, valuing assets is often an art rather than a science. The value of a company in a fire sale is likely to be much less than its value on a leisurely voluntary winding up. Its value as a going concern will be different again. 975) However, writing one particular asset off over an arbitrary 20 years and regardless of the circumstances, especially when its commercial value and income producing ability may easily then be considerably greater than before, must produce results which are neither fish nor flesh nor good red herring. It would be far better for balance sheet purposes to have regard to net tangible assets only and to write intangibles off "below the line" immediately on purchase. 976) The published profit would then represent the true accretion of wealth during the year and at least results would be consistent from company to company and comparable from year to year. 977) Writing off intangible assets is very different from depreciating most tangible assets over their working lifetime. While the precise period for such an asset to lose its value completely and the pace at which this happens may both require a value judgement, at least any estimates made in practice to be of the right order of magnitude in the aggregate. Writing off goodwill over 20 years is not approximately right--it is 100% wrong. 978) One possible side effect arising for this strange accounting standard should also be mentioned. It tends to discourage economic growth as companies become reluctant to make expansion moves because of its existence and enforcement. ----------------------------------------------------------- The entity has instituted a policy of accelerated amortisation and depreciation-----so it is getting more valuable as it moves through time (this is the company itself---not how well Nasdaq or the S&P500 goes---ERG itself) ------------------------------------------------------------ [ Next Thread | Previous Thread | Next Message | Previous Message ] |