Subscribe to this topicForums > General Investment Discussion > Topic: And now for something completely different -- A discussion about Land
| Apr 17th 2008, 11:58 Arnaud Villota |
And now for something completely different -- A discussion about Land | |
| I have had a couple of conversations with Guardian Market and iVentures over the last few weeks to learn a bit more about GAAP and other matters that have popped up on the forums. In a discussion with Guardian a few topics came up that I personally would like to learn more about. One of those was the use of Land in SL and how that is reflected in the financial statements. Some of this was touched on in a thread on the MNM forum but it didn't get a lot of exposure. So I am starting this thread to learn about how people view land as far as the financials go. Is land an asset or an expense? If it is an asset how should it be valued. As a side note, maybe if there is enough interest in these types of discussions, maybe CAPEX could create a new forum titled GAAP and we could open similar threads under that forum. I for one would like to learn more about this stuff. |
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| Apr 17th 2008, 12:25 Ashleigh Wade |
Re: And now for something completely different -- A disc | |
| Building on Arnaud's thought I would like to also incorporate a broader discussion on GAAP principles and how they apply to to SL. Given all the issues and back and forth about interpretation and what's needed for full transparancy, I wonder if this isn't the time to lock our best and brightest accountants and finance minds in a room to devise a SLAAP (HA!). As to land - It's tough because it's not like land in RL. In RL there is a limited supply and no more can be created. In SL LL can create land at will and they've shown no fear is doing so, despite what it does to the "value". So I tend to side with - no it's not an asset. However, there is potentially a resell value on owned land. How is that accounted for? |
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| Apr 17th 2008, 12:49 Pop Nightfire |
Re: And now for something completely different -- A disc | |
| GAAP? Don't make me laugh. I'm convinced they just started throwing that around to make themselves look smart. I highly doubt most SLCX staff even knows what it means. Even within GAAP, there are so many ways to present your financial statements. Accounting is NOT objective! Land can be shown as an asset for our purposes here, IMO. In accounting in general, assets are carried at historical cost net of accumulated depreciation. (That is, unless the asset has been impaired, which certainly has been the case lately in SL land. If impaired, an asset must be written down to its MV or PV of its future cash flows.) And seriously, is anyone depreciating their land assets on SLCX? I doubt it. Trying to get these companies to conform to any kind of RL accounting standards seems pretty silly if you ask me. |
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| Apr 17th 2008, 13:11 Gen Ferraris |
Re: And now for something completely different -&#45
Edited by author Apr 21st 2008, 11:52 |
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| edit: this (slcapex) isn't any of my biz anymore. | ||
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| Apr 17th 2008, 13:31 iVentures Volitant |
Re: And now for something completely different -- A disc | |
| I believe we touched upon this topic earlier regarding how land can be classified. This was mentioned in the thread, "This Land Business." I'll copy and paste what I wrote previously and add a few more comments below. In addition, myself and Guardian have decided to post certain GAAP items that are relevant to SL company financials for management. This can be viewed in our website: www.slfrgroup.com. Of course we won't be able to cover all topics, but we will continue to post as we see fit. The copied excerpt regarding land: << Hopefully my explanations would not cause any confusion, so here it goes: In SL, does land really exist or is it just a pixel within a region utilizing server space? We are utilizing server space, so there is no ownership for us. As someone mentioned, if SL shuts down, we lose everything in our SL accounts. Only physical valuation we have are intangible assets whether this may be software, trademarks, copyrights, patents, etc. Let me get back to land. Tier fees. Never really understood this. Always thought it's a maintenance fee for server space usage. Without servers, we don't exist. Servers are the backbone of SL. What am I trying to get at? It's simple, I think. If you purchase a region, do you own it? No. You are only utilizing server space. Once purchased, you pay tier fees. Are these rental fees? I wouldn't categorize it as such, but only maintenance fee for server space usage. The terms SL uses can be stated better of course. Quite misleading, but for some strange reason, we're all on the same page. This leads me to the next topic. Accounting principles. I will keep this as simple as possible for everyone to understand. Let's start with the basic accounting terms. What is an asset? Probably the most accepted accounting definition of asset is stated by IASB, "An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to the enterprise." It is essential to understand that in accounting, an asset is NOT the same as ownership. Technically, there is no ownership in SL except for intangible assets with RW valuation (examples listed above). If we refer back to land or server space usage, does this qualify as an asset? Server space usage is considered to be a resource. Enterprise is considered to be the Company, who utilizes SL servers to conduct business operations. I would say yes when conducting business in SL. Resources include lindens (cash and cash equivalents), server space usage (PPE), and software (intangibles) should be qualified as assets in SL on the Balance Sheet. At the very least, every listed company on the Exchanges should have a Balance Sheet. Funds received from investors or shareholders can be classified as Paid-In-Capital and cash and cash equivalents on the Balance Sheet. This applies to SL only of course. If we apply our SL businesses in RL, then this is considered to be another topic. >> Additional Comments: However, certain individuals would disagree and treat land as an expense. This makes sense, but I cannot say that I would agree with this. For instance, if someone purchased land from LL for $1K USD of 65K sqm, and decides to sell the land back to market because they decided to rent instead or for other purposes, does this land retain value? Well, consider this. If a potential land buyer is interested in purchasing a region from LL, wouldn't they also consider buying land at a discount if the land is auctioned? Even if it's at $750 USD? This discussion was brought up earlier and there really is no right or wrong answer. It's how you interpret it. Consider LL shutting down all of their servers and stop SL indefinitely. Let's see what you end up with. Only RW assets left are intangible assets. However, if it is agreed that land is treated as an asset, all companies financials under PPE should be written down to its MV. I would consider reflecting the new pricing model of LL. Since the region costs $1K USD with about 65K sqm, I am estimating the valuation should be no more than $4.3/sqm. This is how I would report it. Adding to what Pop mentioned, there is clearly an impairment, but afterall, land still retains value if the owners decide to sell it back to market. I would also agree that depreciation of land should exist here in SL, but how technical do we want to get? Will there be an agreement of how depreciation should be shown? Probably not. I wouldn't want to get into that. However, if LL continues to pump out tiers for sale, then of course impairment will continue to exist and tiers are now in abundance. Adding to Ashleigh's comment: SLAAP. Good one! Nice thought, and it's possible, but would management take this seriously? Let's consider SLEC. Nobody took them seriously because there's no such thing as regulating policies in SL unless it's specifically stated by LL under TOS. I would think the same thing may apply to SLAAP. Please share your thoughts. iVentures |
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| Apr 17th 2008, 14:03 Ashleigh Wade |
Re: And now for something completely different &#45;&#45; A disc | |
| Good question, iVentures. There were a couple of reasons that SLEC never got off the ground from what I saw: 1) There was never a complete buy-in. AVIX committed, ISE committed, and WSE rejected. 2) There was a huge momentum at the time to get it going and nothing really materialized other than a template spreadsheet with partial balance sheet and income statement for financials (which is still being used by some companies today). It then fizzled out...... 3) Everyone’s favorite avatar to hate was the creator of the SLEC group and idea. That instantly invited criticism. 4) There was really no impartiality on the behalf of anyone involved the way it was structured. 5) There was no way to enforce action if warranted. So the SLEC had no teeth. Since the precedent is set that each exchange must take it upon themselves to police, I guess what I am proposing is some sort of framework which companies on SL Capex can refer to as a base guideline for reporting. And perhaps a new template. Something in between the SLEC short form and the rather cumbersome yet thorough template previously supplied by SL Capex. Something that anyone could look at and tell mostly where a company stands. It needs to be something that takes the unique SL environment into account, though, and could apply to complex entities, such as SL Capex, as well as lean entities, such as Yellow Paperclip. Is that feasible? |
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| Apr 17th 2008, 14:40 Guardian Market |
Re: And now for something completely different &#45;&#45; A disc | |
| @Pop: None of the CapEx companies should have reported impaired land values for this reporting cycle because the announcement was made on 4/7, and the reporting cycle ended on 3/31. |
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| Apr 17th 2008, 15:11 Marc Attenborough |
Re: And now for something completely different &#45;&#45; A disc | |
| Just my two cents.... An asset only has value if there is someone out there who is willing to pay for it. If no one is willing to pay you for it, then it's worthless. So if you have land it should be considered an asset based upon reasonable resale value. So if your sim was worth $1,600 USD, you should be taking a write-down in April. If you have software that you paid $1,000 USD for, that is only an asset if you can sell it to someone else and there is actually a market for it. |
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| Apr 17th 2008, 15:15 Lindsay Druart |
Re: And now for something completely different &#45;&#45; A disc | |
| This is exactly how I listed our sims on financials. It's listed as both an expense for the tier and an asset at market rate. Even though I sold two of our LLRS sims for 150% above that, the value is still at $1000. | ||
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| Apr 17th 2008, 15:49 iVentures Volitant |
Re: And now for something completely different &#45;&#45; A disc | |
| It's definitely feasible, but is this worth the added effort? Most companies would prefer simplicity and allow for them to run their business without interruption. Would they want to try and understand new accounting policies in effect? From management standpoint, most likely not. From the investor standpoint, as long as the reported company financials make sense. I wouldn't want to see another SLEC where certain policies were created that the market does not agree to. For instance, we can compare SL CAPEX and ISE. One requires Balance Sheet and the other does not. Off the bat, there's a difference regarding financial statements submissions. I cannot see any consistency throughout the Exchanges without LL involvement. Other thoughts. If let's say we take into account for PPE (land) and Intangible Asset valuation, are there other line items that are in question? We have already taken into effect of the valuation of outstanding shares, which are either priced at par value of .01 or even at zero. Conservatism is preferred. Regarding new accounting policies which may not necessarily be in effect, what SL CAPEX is implementing is sufficient from my standpoint. Management will be required to use the system to populate their company financials. If something is off, such as Total Assets do not equal to Total Liabilities plus Stockholder's Equity, then this would show as an error forcing management to fix prior to submission. This is a simple tool, but effective with the right resources. My thoughts originally was to assist the Exchange with a crosscheck tool used internally. For instance, let's say in the original submission, where A =! L + SE, management decides to place the difference in another line item. Although the financials have been submitted, does it make sense? Another instance is where the CEOs must separate treasury shares from personal shares and report cash and cash equivalents. If what is being reported does not tie back to what is currently in their system, the crosscheck tool can pick this up as a red flag, if it’s a material effect. I have more crosschecks in mind, but these are the most common types. Please share your thoughts. iVentures |
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