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To: rkral who wrote (178401)	6/26/2004 10:46:12 AM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 186894

did you see this, what does this mean? Under the accounting board's proposed rule, companies would be allowed to use a newer, more adjustable method for determining the cost of options. But some experts fret that companies will abuse the new method's flexibility and manipulate the outcome -- leaving investors confused about how to compare companies. Accounting board hears spirited debate siliconvalley.com

To: rkral who wrote (178401)	6/26/2004 3:37:55 PM
From: Ali Chen	Read Replies (3) \| Respond to of 186894

Ron, "And I think you're confused about who is confused." Elmo is a perpetually confused man. Three years ago he posted the following revelation about his understanding of option accounting: Message 16833577 Apparently, the monthly habit of purchasing shares and trading options has an unbearable complexity for him. Let me try to simplify Elmo's example. Suppose he has 100 shares of XYZ he bought 5 years ago for @10, and 100 XYZ he bought 2 years ago for @30. Let say today he has $1000 in cash and all these 200 shares, and the market values them at $50. His net worth is 200$50+$1000=$11,000. Now, two years ago he hired a man to paint his door, and he agrees to pay him for this job by an option to buy 20 shares of XYZ after two years of service at a fixed price of $30 (as a FMV at the day of contract), and do whatever he wishes with the stock (with additional condition that he must periodically check out the door paint for two years, and if he fails to obey this, the deal is off). Today the guy shows up, requests his 20 shares, gives Elmo $600, and sells them the same day for their market value of $1000 profiting $400 as a payoff for his paint job. What does it leave for Elmo? He has now $1600 in cash, but only 180 shares, total @50180 = $9,000, plus cash = $10,600, so his net worth is down by $400. Does it matter which shares did he sell? Hell no - from the market perspective, today they all have the same valuation at @50. If he feels more comfortable to keep the same pool of shares, he can go to the market and fill up the deficit of 20 shares, but he has to pay $1000 for those. As result, his worth will be still $10,600. Funny, since he would buy the shares about same day, how does he know that those 20 shares are not the same as just sold by his worker? Equivalently, he could just pay the worker $400 straight, and save on broker fee:-) So, at the end of day, by fulfilling his previous obligations, his net cost for the paint job is $400. Now, to make his construction more absurd, he can say that he sold to the guy the 5-years-old shares (then a $200 value), and even made a profit of $400, while in fact he lost $400 on the transaction. I'd like to see his explanations for the paradox :-) :-) Take care, - Ali