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Varo Jan Caravanserai Consulting	Posted - 2010.06.15 09:41:00 - [1] I've prepared financial statements for One Stop for the first quarter of operations since I acquired the group from LoW on 1st February 2010. They can be viewed here. The accounts and financial statements were prepared by me and audited by Magnu Stormhawk. His audit report forms the first page of the document. The financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis, and include balance sheets, profit and loss statements (including retained earnings), and cash flow statements for each month. The cash flow statement is the only one that can be prepared directly from the API (wallet journal). The others require significant manual adjustments. The worst by far was contracts - that is a serious pain. Was it worth doing? Absolutely. I'm now satisfied that EVE accounts can be prepared using RL accounting principles, and can be audited by RL auditors. However, the degree of manual effort involved means that this process will not appeal to most. At least not until there exist EVE applications that do away with much of the manual drudgery - and an API for contracts. I'll continue to prepare monthly accounts for One Stop and issue them on a quarterly basis. Now that I've established a method, I'll also be compiling accounts for my other operations. I'll be happy to take any questions.
SetrakDark Northstar Cabal R.A.G.E	Posted - 2010.06.15 10:26:00 - [2] That was cool. Good work.
Magnu Stormhawk Stormhawk Enterprises	Posted - 2010.06.15 11:21:00 - [3] /Signed Great work Varo. An astonishing amount of effort went into the calculations behind those numbers.
Hexxx Minmatar	Posted - 2010.06.15 13:47:00 - [4] You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..." Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in. Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO? Projects Blog
Dzil Caldari Caldari Independent Navy Reserve OWN Alliance	Posted - 2010.06.15 13:53:00 - [5] The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker? Retired from corp sales. Time to spend some of this on pretty explosions :)
Krathos Morpheus Legion Infernal	Posted - 2010.06.15 14:15:00 - [6] Originally by: Dzil The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker? Amortization: You make a big expenditure on something that you will use to create revenue along an extended period of time. Then instead of accounting that expenditure right away and get a negative profit, you account for it on successive periods until the full expenditure has been accounted for. On ideal terms, the time it takes to amortize something is the time it would take to pay it from the profits it creates, but accounting elapses that period to avoid reporting zeroed profits and distribute the burden on longer periods. EVEwatch Sidebar soon "It is the unofficial force ù the Jita irregulars. "
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 14:21:00 - [7] Originally by: Hexxx You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..." Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in. In short, it's actual cost. So transactions are recorded at the price ruling at the time, and assets are valued at their original cost - unless net realisable value is lower than cost, in which case that lower figure is used. Some consequences are: Stock is valued at cost, not selling price - which is what is often done in MD. Assets are valued at cost - not a hoped for revalued selling price, which is also often done here. Quote: Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO? Quoting from my report: Quote: Stock Blueprint copies are initially valued at purchase price or production cost as appropriate. FIFO is used to determine the stock valuation of capital component blueprint copies at the end of each month. Fuels are valued at cost, which is determined using the average costing method. Horses for courses. LIFO is often used as a tax dodge in RL, and has no place here, I would suggest. I'd also suggest that people be left to choose either FIFO or average as appropriate. I wouldn't get any more complicated than that in EVE.
Hexxx Minmatar	Posted - 2010.06.15 14:32:00 - [8] Originally by: Varo Jan Originally by: Hexxx You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..." Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in. In short, it's actual cost. So transactions are recorded at the price ruling at the time, and assets are valued at their original cost - unless net realisable value is lower than cost, in which case that lower figure is used. Some consequences are: Stock is valued at cost, not selling price - which is what is often done in MD. Assets are valued at cost - not a hoped for revalued selling price, which is also often done here. Quote: Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO? Quoting from my report: Quote: Stock Blueprint copies are initially valued at purchase price or production cost as appropriate. FIFO is used to determine the stock valuation of capital component blueprint copies at the end of each month. Fuels are valued at cost, which is determined using the average costing method. Horses for courses. LIFO is often used as a tax dodge in RL, and has no place here, I would suggest. I'd also suggest that people be left to choose either FIFO or average as appropriate. I wouldn't get any more complicated than that in EVE. Your reply strikes perfectly, wrecking my reading comprehension for 1560 points. Thanks for the clarification! Projects Blog
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 14:43:00 - [9] Originally by: Dzil The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker? I paid a premium of 4.3B over the market value of tangible assets to acquire One Stop. That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand.
cosmoray Bella Vista Holdings Corp	Posted - 2010.06.15 14:47:00 - [10] Let me start by saying I am no accountant or expert (so I may be reading the statements wrong), but I have a couple of questions. You released a 175B bond at 4%, which is a payment of 7B a month. Where is that stated on the P&L and/or cash flow statement. Secondly on cash flow statement for April I see cash receipts of 13.9B, but in P&L there is: capital kit sales = 5.6 sales fees = 5.6 research income = 2.1 Total = 13.3 Where is the difference of 0.6B in receipts vs the cash flow
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 15:12:00 - [11] Originally by: cosmoray You released a 175B bond at 4%, which is a payment of 7B a month. Where is that stated on the P&L and/or cash flow statement. Actually, it's 7.25B in total as the unsecured bonds command a higher rate of interest. But to answer your question, I'll first quote from my report: Quote: One Stop Buyout Bonds Varo Jan raised a bond offering of 150B secured on OS assets and shares owned by Ji Sama, and an unsecured bond offering of 25B in order to fund the purchase of OS. The bonds are a personal liability on Varo Jan that is secured on the assets of One Stop. As such, One Stop has a contingent liability at the balance sheet date of 175 Billion ISK. The interest payments on this debt are partly funded by One Stop by way of profit distributions to Varo Jan. One Stop cash utilised for the payment of interest payments are treated as loans to Varo Jan until such time as they are repaid or cleared by way of a profit distribution. Consequently, interest is shown in Varo Jan's P&L, not One Stop. Think of it this way. I consider that I have a moral obligation to pay interest to bond holders - whether or not One Stop performs. So it's a personal debt on me. Quote: Secondly on cash flow statement for April I see cash receipts of 13.9B, but in P&L there is: capital kit sales = 5.6 sales fees = 5.6 research income = 2.1 Total = 13.3 Where is the difference of 0.6B in receipts vs the cash flow Accounts are prepared using a number of conventions, one of which is called the matching principle. Revenues and costs are matched to the correct period. I won't do a full reconciliation here, but I can tell you the types of transactions, such as: Advances - One Stop received sales advances in April for services rendered in May. So 0.5B will not show up in April profits. Accruals - The salary for an employee for April was paid in March, so that goes the other way. It shows as a deduction in April profits, but the cash went out after month end. Prepayments - GTCs purchased in April relate to April and May, so only the portion applicable to April would be charged to the P&L in April. And so on... There will always be differences between cash flow and P&L. If any of that was lacking in clarity, please let me know.
Magnu Stormhawk Stormhawk Enterprises	Posted - 2010.06.15 15:22:00 - [12] Originally by: Varo Jan Originally by: Dzil The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker? I paid a premium of 4.3B over the market value of tangible assets to acquire One Stop. That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand. Note that part of the goodwill effectively relates to the benefit of the customer base and future income stream. This does not last forever as people change and businesses change. It is prudent to write off the value of this asset over its estimated useful life. Six months is a fair estimation of how long the original business momentum will benefit Varo.
RAW23	Posted - 2010.06.15 16:09:00 - [13] Well done on the thorough job! The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me?
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 16:26:00 - [14] Originally by: RAW23 Well done on the thorough job! The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me? Thankee. :) Sure, the accounts are precise to the iskling - but I've tried to keep the presentation as simple as possible (such as rounding to billions - easier on the eye and brain). Would a commentary and some profit/financial ratios help, perhaps? Would an explanation of terms help?
Grendell Technologies Unlimited	Posted - 2010.06.15 16:30:00 - [15] Nice read Varo, but there was nothing mentioned in the report about my dashing amarrian good looks.
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 16:47:00 - [16] Originally by: Grendell Nice read Varo, but there was nothing mentioned in the report about my dashing amarrian good looks. Dang, I knew I'd missed something!
RAW23	Posted - 2010.06.15 16:50:00 - [17] Originally by: Varo Jan Originally by: RAW23 Well done on the thorough job! The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me? Thankee. :) Sure, the accounts are precise to the iskling - but I've tried to keep the presentation as simple as possible (such as rounding to billions - easier on the eye and brain). Would a commentary and some profit/financial ratios help, perhaps? Would an explanation of terms help? An accounting textbook would probably help most :-). But short of that, a paragraph or two of commentary would probably be the most useful thing (for me at least).
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 17:03:00 - [18] Originally by: RAW23 An accounting textbook would probably help most :-). But short of that, a paragraph or two of commentary would probably be the most useful thing (for me at least). Nah, no need for a textbook. I think familiarisation will demystify the terms. Cash Flow: The business generated 7.8B in cash in April. We used 0.2B of that to buy some POS modules. We gave Varo 3.3B in loans and 3.9B as a quarterly profit distribution (read dividend). So that left us with half a billion. Add that to what we had on 1st April, and you can see that our wallet balances were 1.9B at month end. Summat like that?
Kragaar	Posted - 2010.06.15 17:24:00 - [19] Originally by: Varo Jan That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand. Actually it depends. Under Canadian GAAP for example you cannot amortize goodwill, only perform annual (or periodic) tests for impairment. If the goodwill is impaired you may perform a write down, and if the goodwill is not impaired then you cannot write it down. Now if the intangible asset relates to some identifiable asset such as customer lists or trademarks those can be amortized over a reasonable period of time. You mentioned you prepared these statements using GAAP, but GAAP under what country?
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 17:37:00 - [20] Originally by: Kragaar Originally by: Varo Jan That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand. Actually it depends. Under Canadian GAAP for example you cannot amortize goodwill, only perform annual (or periodic) tests for impairment. If the goodwill is impaired you may perform a write down, and if the goodwill is not impaired then you cannot write it down. Now if the intangible asset relates to some identifiable asset such as customer lists or trademarks those can be amortized over a reasonable period of time. You mentioned you prepared these statements using GAAP, but GAAP under what country? I used the term in a generic sense, not intending to be country specific, which is why I didn't use caps. :) There's a practical limit to what can be brought to EVE. That said, I'm English so I'll be inclined to draw on that background.
RAW23	Posted - 2010.06.15 17:39:00 - [21] Originally by: Varo Jan Cash Flow: The business generated 7.8B in cash in April. We used 0.2B of that to buy some POS modules. We gave Varo 3.3B in loans and 3.9B as a quarterly profit distribution (read dividend). So that left us with half a billion. Add that to what we had on 1st April, and you can see that our wallet balances were 1.9B at month end. Summat like that? Something along those lines would be great.
cosmoray Bella Vista Holdings Corp	Posted - 2010.06.15 17:41:00 - [22] Edited by: cosmoray on 15/06/2010 17:41:52 Ok thanks for the answers. Are the employees Varo's characters, so they are payments to you? If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond. Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B. Also where on the P&L/cash flow are payments to mercs? Good job you were able to get financing at 4%, or this would be underwater. The business looks at about break even after financing. Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books.
RAW23	Posted - 2010.06.15 17:57:00 - [23] Originally by: cosmoray Edited by: cosmoray on 15/06/2010 17:41:52 Ok thanks for the answers. Are the employees Varo's characters, so they are payments to you? If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond. Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B. Also where on the P&L/cash flow are payments to mercs? Good job you were able to get financing at 4%, or this would be underwater. The business looks at about break even after financing. Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books. On profitability, do we need to add in the 10bil growth in assets (and the good-will write-offs?) to get an accurate picture?
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 18:19:00 - [24] Originally by: cosmoray Are the employees Varo's characters, so they are payments to you? My characters show as assets in the balance sheet. The employee who is paid a salary is not one of my characters. He worked for LoW before and continues to provide the same services to One Stop. Quote: Also where on the P&L/cash flow are payments to mercs? A standard charge is made to the P&L (under other operating costs) each month to cover merc fees. Cash paid for merc fees will form part of cash paid to suppliers and employees in the cash flow statement. The subject is also covered in one of my notes in the report. Quote: If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond. Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B. The business looks at about break even after financing. I'll reiterate what I said earlier. Interest, or financing costs as you put it, do not form part of One Stop's accounts as the bonds are being treated as personal liabilities. Financing costs are paid by me regardless of the level of profitability of One Stop. Specifically, all bond interest payments for the months of February, March, April and May have been paid on or before the due date. Quote: Good job you were able to get financing at 4%, or this would be underwater. Not relevant. Please see above. Quote: Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books. As they would to any business.
cosmoray Bella Vista Holdings Corp	Posted - 2010.06.15 18:27:00 - [25] But your financing is secured against One Stop. If anything happenned to One Stop it may severely impact your ability to pay off the loan.
Varo Jan Caravanserai Consulting	Posted - 2010.06.15 19:03:00 - [26] Originally by: cosmoray But your financing is secured against One Stop. If anything happenned to One Stop it may severely impact your ability to pay off the loan. Turn it round. If anything happened to me, Grendell and Setrak will liquidate and pay investors. BPOs alone at end April were worth 135B, and have risen since then. Certainly if anything happened to One Stop, it would have an impact on my overall personal net worth. Whether it would have any impact at all, let alone a severe one, on my ability to service the bonds is unlikely. The markets One Stop is involved in are erratic, and some segments have not performed as well as anticipated. Equally, sales in 4 days in June amounted to 6B - so profits can fluctuate positively as well. It's an interesting ride. :)
MailDeadDrop The Collective	Posted - 2010.06.15 19:34:00 - [27] I have a minor suggestion for the formatting of the report. Rather than listing negative values in red, print them in black but parenthesized. Doing so makes the report friendlier to both colorblind readers and color-incapable printers. MDD
Ray McCormack Nordar Innovations.	Posted - 2010.06.16 11:58:00 - [28] Where do I find the previously mentioned 15b+ income figure? Follow My EBANK Chatter
Varo Jan Caravanserai Consulting	Posted - 2010.06.16 12:39:00 - [29] Originally by: Ray McCormack Where do I find the previously mentioned 15b+ income figure? You're late. I'd been expecting that one since I opened the thread. :) The 15B+ profit (not income) figure for One Stop's combined activities was a forecast, a target. It's still doable, just not as soon as I expected. Mea maxima culpa. Quote: I have a minor suggestion for the formatting of the report. Rather than listing negative values in red, print them in black but parenthesized. Doing so makes the report friendlier to both colorblind readers and color-incapable printers. MDD Good point. Will do.
DrefsabZN Caldari Rage For Order	Posted - 2010.06.16 12:51:00 - [30] Edited by: DrefsabZN on 16/06/2010 12:52:04 Nice report :D

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