PTK,
Quite honestly, I am not 100% sure I can recount it all and do it justice.
However, the essence, from what I could determine, was that it was not appropriate to move the unpaid balance of the OXO Chemie AG acquisition purchase price from the liability portion of the balance sheet to the equity portion and apply a discount rate because:
1) It is not cash or a tangible asset (i.e., have real known value).
2) It is difficult to assign a value because one does not really know if there is value there as you move into the future (will the drug get approved, will competitors make it worthless, before it is commercialized etc.).
3) It is therefore difficult to establish a discount rate. How do you discount something that may be worthless in 3 years.
4) It makes the balance sheet look better than it really is -- how ironic.
If I understood the argument correctly, I can see his point. To me (a non accountant) it make sense. Just because you are paying for something, there are many factors moving forward that could make something like a patent or unapproved drug potentially worthless. It is not like cash or a building or even goodwill (where you have a history that helps establish that value).
Interestingly, apparently the US changed their accounting rules 30 years ago, for these very reasons for situations like this.
I hope that helps.
MB |
