On Thu, October 2, 2008 5:31 pm, Charles Bennett wrote: > Imagine this. > > You buy a $30,000 new car. (perhaps a SUV) > > You drive it off the lot and it's worth 20k as a "used" car. > > By law, you must show the 10k "loss" on your books today. > > Now, since it's a SUV, gas goes to $6 and you couldn't sell it if you > had to. > > By law, you must declare a 30k loss *right now* and tell everyone > thinking of loaning you money that you are 30k in the hole.
I don't disagree there's an obvious problem - when we have a dip in the market, this tends to create a feedback loop... a vicious cycle, driving down the value of assets on the books. In theory there seems nothing inappropriate about forcing a company to value their assets fairly, but in practice what does fairly mean? Perhaps we need some buffer - a rolling average price to smooth out the dips (and peaks) of the market to help slow down that feedback loop? Otherwise, what are the alternatives? Some assets decline in value over time - cars, for instance... so valuing them based on initial cost is clearly wrong. Some assets may increase in value over time - real estate in general - so how do you value those? Basing it on initial cost is also clearly wrong, as you're buying with the expectation (at least in part) of the investment value; but valuing based on your long-term target price also seems wrong, as if you're forced into a sale earlier than planned (to raise capital for something else) then that asset won't be worth anywhere near the long-term expected value. So on the face of it, current market value seems the "fairest", but also prone to those vicious cycles. Then again, I'm not an accountant, and I only have the fuzziest idea of how anything more complex than cash works :) I will say, I think the flaw in your car analogy is that fair market value for an object with no current market isn't necessarily zero - if you possess a vehicle and no one buys, then you don't just give it away for $0 - that's the only sure way to see zero value. You look to generally accepted resources - for a car, you might go by Kelly Blue Book valuation, which is *not* going to say $0 just because no one wants it. Plus, there's a flaw in thinking that there's ever *zero* market for a mainstream consumer product - sure, those $100 million dollar homes might have a very finite market, but even now people *are* still buying SUVs, middle-class homes, etc, just not as many. _______________________________________________ OSX-Nutters mailing list | [email protected] http://lists.tit-wank.com/mailman/listinfo/osx-nutters List hosted at http://cat5.org/
