KB Home (a builder) took a solid hit today. Accountants erased $514 million from the company's books. Zap. A half a billion dollars just evaporates.
How do they do that? Accountants in the past had computed that KB Home had tax credits worth $514 million that could be used to reduce their taxes, when and if they ever made any money. Accountants are allowed to enter potential tax breaks onto the company books as an asset. Wow. Add $514 million to the bottom line, that will make the company look profitable. Pumps up the stock too. Great.
Unfortunately the auditors decided that the chances of KB Home ever making any money were remote and they insisted that the $514 million be removed, 'cause it wasn't ever going to do KB any good.
Something like this happened over at GM last year to the tune of $39 Billion (yes, b for billion).
This kind of book keeping doesn't help investors evaluating the company or managers trying to improve the company earnings. It is a deceptive practice intended to make the company look more profitable than it really is. There oughta be a law agin it.
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