Wednesday, March 19, 2014 3:14:11 PM
To get into the ice cream business, BCCI gave Caliph Diaries (presumably, financial statements don't say who) 500,000 shares for 'ice cream distribution funding.' You can see that in the Q2 2012 report. As you point out, accounting is 'double entry.' So, using .001 per share (par value), they 'debited' expense for $5K and 'credited' shareholder equity for $5K.
Their Q2 2013 report said that in the process of doing the audit, they realized that they were 'accounting for shareholder equity' incorrectly. So, what they then did was to put those shares on the stockholder equity side at $500,000 (.10/share, market value at the time), AND re-categorize the expense instead as an 'Unidentified Tangible and Intangible Asset' for $500,000 - part of the total $8M or so in that category. The 5,000,000 shares are now shown as 'Purchase of an Asset' in the shares table
IMO, they were right the first time to call this an expense -- but it should have been for $500K, not $5K. Ice cream distribution funding is not, per GAAP, an 'asset.' But $500K as an expense in Q2 2012 would have been more than revenue for the quarter, and $8M as an expense would have dwarfed lifetime revenue, so company didn't want to show that.
If an audit is ever done -- and published -- much if not all of the $8M 'asset' will go away. I am sure that BCCI will try to do in such a way as to mask the issue -- for example, simply reduce the assets to $0 (or a number close to that) and reduce shareholder equity accordingly, thus never running these expenses through the profit and loss, enabling naïve investors to continue to believe the myth of profitability.
But I'm not sure an audit will ever be done. This company has no cash, and auditors do not accept payment in shares (I know, I was one many years ago).
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