The Write-Off is Announced
$1,144,504 : that is the irrevocable price so far, with millions more still tied up, of the City’s involvement with Southern/SME.
According to a memo released Friday, $905,019 in principal + $239,485 in anticipated interest will be written off the city’s books, on the heels of an evaluation of independent auditors into the finances of Southern Montana.
The City’s statement, incidentally, is sheer gobbledy-gook. Try to make sense of it:
The restatement of Electric City Power’s financial statements will have the effect of moving $905,019 in historical costs paid to Southern from ECP’s balance sheet to the FY 2009 operating statement. In other words, part of the booked value of an asset from prior years is now required to become an expense in FY 2009. The monies paid out in prior years were for site-selection, site-development, permitting, design, and construction.
[...]
It is my recommendation that ECP rely upon the analysis conducted by Southern’s experts and adjust ECP’s financial statements in accordance with the values determined to be applicable to the City’s investment in this endeavor. It is also my recommendation that $239,485 of capitalized interest expense reflected on ECP’s balance sheet also be considered an impaired asset and expensed in the same manner.
I love how we, in our vocabulary, have lost track of the simple concept of “losing $900k” and now find need to say that we are just “moving $900k in historical costs…to the FY 2009 operating statement.” The second paragraph, too, is priceless; we’ve been pretending that interest has been accumulating all the while on our investment, and now we must write down that cost, too. And Electric City Power is “in the black”? I think not.
ECW will try to get these full documents posted presently.
“There’s no risk, it simply takes time to work it out. The city is covered.”
These are stupid times we are living in.
And the “House of Cards” begins its tumble as predicted years ago by many in the know!
What is capitalized interest?
Just a big write off.
How big’s the reserve on the fund balance for the rest of the asset and what’s left unreserved?
Hmmm, can I use this accounting methodology for my credit card debts? The stuff I bought is no longer usable, therefore I wish to write it off and forfeit the debt.
There is nothing wrong with capitalizing interest vs expensing interest – both are valid ways to look at the cost of building.
Many people look at the cost of a property to determine current value – that is, they look into the past as a reference for the value today.
Capitalizing will make it appear the cost of the property was initially higher, but cheaper to build. Expensing it makes it appear the property was cheaper, but more expensive to build.
Since it has already been built, the expenses incurred are ’sunk’ – whether the building was worth it or not is immaterial. “Puts ya money, takes ya chances!”
The net effect is that the building built for X is now valued at somewhat less than X if it was to be sold – or borrowed against. It is meaningless if neither of those options will be executed.
Black Flag, I cannot tell if you were speaking figuratively or not, but so far I don’t anything has been “built” other than maybe some concrete poured for a foundation.
What are they capitalizing then? Air?
If so, then that’s a problem
“What are they capitalizing then? Air?”
Not air silly, but a few people have made a nice living off this flim-flam. They will move on to find their next scam and leave others with the debt.