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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 71.08+0.1%Nov 7 9:30 AM EST
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To: nihil who wrote (21198)1/26/1999 2:53:00 PM
From: Chuzzlewit  Read Replies (1) of 77397
 
Nihil, you've got it backwards. The SEC wants acquiring firms to set up reserves for R&D they haven't performed over the life of the project. Under current practice, many acquiring firms simply take the write-off as a one time event (effectively writing off future expenses now). Compaq, in its most recent SEC filing clearly lays out the rationale for the DEC write-offs.

The hallmark of pooling of interests accounting is that balance sheet items are simply added across. Their is no requirement for capitalizing that which had previously been expensed. Under purchase rules, however, the difference between the amount paid for a company and the market value of the acquired assets less the acquired liabilities are capitalized and amortized as "goodwill".

As I see it, Levitt is absolutely correct. We need more transparent accounting rules. The current rules are so convoluted and removed from reality that I recommend that you pay attention only to the appropriate cash flow statements. That will bypass all of these issues. Free cash flow is IMO the single best metric to use. Notice that cash flow and corporate income taxes are unaffected by how companies account for the merger.

TTFN,
CTC
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