An article on technology write-downs and Canadian accounting rules that apply.
ottawacitizen.com
The beauty of a one-time charge, especially one attached to an acquisition, is that it has the potential of sharply increasing a firm's future earnings streams.
Corel Corp., for instance, took a $158-million Cdn writedown in its
most recent quarter related mainly to its 1996 acquisition of WordPerfect.
Corel had been setting aside about $12.5 million Cdn per quarter to pay for the WordPerfect purchase. But from now on, this money will flow straight through to Corel's bottom line.
Corel was able to write off a substantial portion of its WordPerfect
purchase price because Corel's software designers have made so many changes to the WordPerfect technology over the past 18 months. (In other words, after the changes, Corel can write off the cost of the WordPerfect software code that no longer forms part of its current product line.) Corel's accountants decided it was time to reflect this reality. But what's interesting is how many local firms have decided to writedown the cost of their acquisitions almost immediately.
Under Canadian accounting rules, high-tech firms usually have to capitalize purchases of assets or technology. It means that the purchase price is included on the company's books as an asset, then paid for bit by bit over a few years.
Canadian firms have never liked this treatment because, they argue, it puts them at a disadvantage with their U.S. competitors. American companies can write off the costs of acquisitions as soon as they are made.
It means that U.S. firms will report higher net earnings in future
quarters because it's already paid for the initial purchase.
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