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mukiha		#31 Posted : Wednesday, June 23, 2010 9:25:07 AM
Rank: Elder Joined: 6/27/2008 Posts: 4,114		Here is a comparison: You agree to buy a house for sh10m. You go to a bank and borrow the 10m on a 15-year mortgage at 15%pa interest. At the end of the 15yrs, what will be the value of the house in your books? Is it the 10m selling price? or Is it the sh25m that you actually paid to the bank in installments? That's the question regarding CFC. They paid sh9b more for Stanbic Kenya than its NAV. This is the bulk goodwill in the assets. Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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VituVingiSana		#32 Posted : Wednesday, June 23, 2010 9:36:08 AM
Rank: Chief Joined: 1/3/2007 Posts: 18,349 Location: Nairobi		mukiha wrote: Here is a comparison: You agree to buy a house for sh10m. You go to a bank and borrow the 10m on a 15-year mortgage at 15%pa interest. At the end of the 15yrs, what will be the value of the house in your books? Is it the 10m selling price? or Is it the sh25m that you actually paid to the bank in installments? That's the question regarding CFC. They paid sh9b more for Stanbic Kenya than its NAV. This is the bulk goodwill in the assets. it is NEITHER of the above... The value is what the market/buyer will pay for the house... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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mukiha		#33 Posted : Wednesday, June 23, 2010 11:33:30 AM
Rank: Elder Joined: 6/27/2008 Posts: 4,114		@VVS; The one you are talking about is the "market value"; what I am talking about is the "value in your books", i.e., BOOK VALUE Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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VituVingiSana		#34 Posted : Wednesday, June 23, 2010 11:46:44 AM
Rank: Chief Joined: 1/3/2007 Posts: 18,349 Location: Nairobi		mukiha wrote: @VVS; The one you are talking about is the "market value"; what I am talking about is the "value in your books", i.e., BOOK VALUE Unless you capitalize the interest payments (not advisable coz better to expense interest where possible for tax benefits) the BV will be KES 10mn... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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mukiha		#35 Posted : Wednesday, June 23, 2010 12:08:43 PM
Rank: Elder Joined: 6/27/2008 Posts: 4,114		Interesting... what if you get finance from a sharia bank? Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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VituVingiSana		#36 Posted : Wednesday, June 23, 2010 12:29:40 PM
Rank: Chief Joined: 1/3/2007 Posts: 18,349 Location: Nairobi		mukiha wrote: Interesting... what if you get finance from a sharia bank? No idea... LOL... I am not a mislamu! Lakini, others cud help us here... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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StatMeister		#37 Posted : Wednesday, June 23, 2010 12:44:04 PM
Rank: Veteran Joined: 5/23/2010 Posts: 868 Location: La Islas Galápagos		The concept of return on investment is universal, but in sharia you call interest 'profit' but it is not amortised (interest income is not a simple function Interest rate*Balance) explaining why the product is not popular with lenders. A bad day fishing is better than a good day at work
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mukiha		#38 Posted : Thursday, June 24, 2010 9:05:03 AM
Rank: Elder Joined: 6/27/2008 Posts: 4,114		..perhaps I chose a bad example; this might be better: Suppose your are offered the house at sh10m; then you send in a QS to value the construction cost [including the land] and he comes up with sh6m. You still buy the house at sh10m [in cash] even though you know it is "worth" sh6m. What will be its value in your books? 10m or 6m? Nothing is real unless it can be named; nothing has value unless it can be sold; money is worthless unless you spend it.
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VituVingiSana		#39 Posted : Thursday, June 24, 2010 10:02:15 AM
Rank: Chief Joined: 1/3/2007 Posts: 18,349 Location: Nairobi		mukiha wrote: ..perhaps I chose a bad example; this might be better: Suppose your are offered the house at sh10m; then you send in a QS to value the construction cost [including the land] and he comes up with sh6m. You still buy the house at sh10m [in cash] even though you know it is "worth" sh6m. What will be its value in your books? 10m or 6m? Companies are supposed to use the 'lower of Cost or Net Realizable Value'.... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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