| Subject: | [socialcredit] Replying to Matt Greco--the "zero sum" fallacy | | Date: | Sunday, May 1, 2005 09:42:15 (-0700) | | From: | William B. Ryan <w_b_ryan @.....com>
|
From: Matvox@aol.com
Date: Sun, 1 May 2005 10:50:54 EDT
Subject: Re: the "zero sum" fallacy
Bill,
I don't believe your analysis is entirely correct.
While normally you are right, firms do record the
equivalent value of an asset purchased so that there
is no change in overall value to the firm and for
which they now have a book value for the asset. But
presumably they bought the asset because they feel it
will make a better return on capital than money
sitting idle.
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[REPLY] That's right. But it's speculative. There
is no profit to book until it's realized.
-
At any rate, there are occasions when a firm might be
required to reassess the value of that asset to mark
it to market value rather than the historic book
value.
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[REPLY] That's right, too, but the accounting
adjustment would be so noted and explained in the
firm's books. It very much depends on what business
the firm is in, and what are the circumstances. The
occasions you allude to are exceptions to the general
rule. If the firm is, for example, in the lending
business, and has acquired property through
foreclosure, it is frequently the case that the
property is overvalued in the firm's books,
overstating the firm's profits and net-worth. Their
regulators or auditors will (or should) require them
to make the accounting adjustments.
-
It is possible to make reasonable estimates of this
without actually making a sale based on equivalent
sales.
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[REPLY] While it is indeed possible in special
circumstances, it is not generally the case that it's
good accounting practice. Usually, it's indicative
of fraud, to jack up reported profit or net-worth to
impress the public.
-
For instance one doesn't need to sell one's house to
have a reasonable idea of what it's worth based on
what the neighbors' houses are selling for.
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[REPLY] But that's not business accounting. If you
want to sell your house, you want to get an idea what
comparable houses are selling for. What it's really
worth is what you actually sell it for.
-
In fact, most towns reassess home values for tax
purposes periodically, regardless of whether the
asset has exchanged hands.
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[REPLY] That's not business accounting, either. It's
tax assessment.
-
Corporations, banks included, do as well.
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[REPLY] No they don't--not in profit-loss accounting.
If they want to sell, for example, a parcel of land
in their possession, they want to get some idea as to
what price similar parcels are selling for, so they
know what price to ask the prospective purchaser.
They will book a capital gain (or loss) on the parcel
only when it is sold. If the gain or loss is from a
transaction that is not its usual business activity,
it will (or should) be so noted in its books.
-
Matt Greco
--- Matvox@aol.com wrote:
> Bill,
>
> I don't believe your analysis is entirely correct.
> While normally you are
[snipped]
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