I take as my example, the film Friends with money.
First of all, I would like to make clear some of the basic assumptions underlying my calculations.
Namely, that despite their inherent value:
1 x Joan Cusack
1 x Frances McDormand
WILL NEVER offset the negative equity of
1 x Jennifer Aniston
Let’s look more closely at the correct treatment of Jennifer Aniston, shall we? You may think that, being a completely empty vessel, incapable of conveying any complexity of character, would mean that she attracts, as an ‘asset’, a neutral value, at worst. Further, you might assume that this asset might attain maturity over time.
Don’t feel bad if you got caught out here, it is a common error.
You have to keep in mind the Cusack/McDormand matrix set out above.
Inclusion of Jennifer Aniston in your balance sheet will ALWAYS result in an operating loss, no matter how strongly your other current and non-current assets may be appreciating in value and no matter how robust your risk management plan is.
I stress, Jennifer Aniston must always be classed as a contingent liability, or, if you like to push the accounting boundaries, as an impaired intangible.
Now, I know there is an ongoing dialogue about the merits of moving away from cash-based accounting towards accrual accounting.
I think in this particular instance, we can plainly see the value of accrual accounting in providing a more accurate and holistic representation of the fiscal position that a viewer of this film finds themselves in on completion of the reporting period.
For instance, whilst in cash accounting terms, we only lost $5.95 (being the expense of leasing the film), when we use the principles of accrual accounting (calculating all forms of loss, whether cash-based or otherwise), we can see that there are additional costs associated with depreciation of enjoyment of life, including:
When expensed in real terms, all adds up to one big stinking pile of sh*t.
Loss of 88 perfectly good minutes of a human life
Loss of approximately 17 other minutes spent recalling how appallingly stinky this movie was.
Let’s not forget that there are no revenues (or indeed, any positive in-flows) to offset these massive losses.
So, looking at the bottom line, we don’t even have enough petty
Learn from my mistakes people, lest you become similarly morally bankrupt.