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To: Skeeter Bug who wrote (16392)	8/5/2002 12:27:53 PM
From: Kirk ©	Read Replies (1) \| Respond to of 42834

let's stay on track here and use similar examples. what if the company compensated their ceo with a monet picture they found underneath another picture that they got for free from a garage sale. they paid nothing for the monet. it is now worth $5,000,000. Well, as soon as they discovered it was worth $5M, they would have to show it on their balance sheet just as they do with stock they issue and hold that goes up in value. Now if they give that stock or Monet away for less than current market value, then they have to reduce their balance sheet accordingly. They might even get lucky and get the CEO to pay them $1M for the painting in the process which would be shown as positive cash flow. Of course, the CEO would have to pay taxes on this difference between fair market value and what he paid at the earned income rate since it is salary... hey, that is what happens today with options!

To: Skeeter Bug who wrote (16392)	8/5/2002 2:16:57 PM
From: Math Junkie	Read Replies (1) \| Respond to of 42834

I like the Monet example. Suppose instead of giving the Monet to the CEO, they sold it for $5,000,000 and gave him or her the money. They would then book $5,000,000 in revenue for the sale, and $5,000,000 in expense when they gave the money to the CEO. Do you agree that this would be a correct accounting treatment? Now, suppose that, unbeknownst to the company, the CEO (through an intermediary) was actually the buyer of the Monet. Wouldn't that be completely equivalent to their giving the Monet to the CEO in the first place? After all, the end result is exactly the same. The company ends up having neither the Monet nor the money <g>, and the CEO ends up with the Monet, so the end result is identical. Consistency would therefore demand that the accounting treatment be the same. The company should book $5,000,000 of expense AND $5,000,000 of revenue.