Microsoft Shareholders Paid for Record Earnings in Q1 2007

Discussion in 'NZ Computing' started by Dianthus Mimulus, May 5, 2007.

  1. Microsoft Shareholders Paid for Record Earnings in Q1 2007

    http://biz.yahoo.com/seekingalpha/070503/34354_id.html?.v=1

    "" Microsoft's own numbers tell us the way it is making more and more each
    quarter is partly funded by making each share worth less and less in
    assets. At the very least, this fact that Microsoft is dipping into its
    assets to pay for its record earnings makes me question just how
    successful those Vista and Office launches really were. ""
     
    Dianthus Mimulus, May 5, 2007
    #1
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  2. Dianthus Mimulus

    Jack Guest

    The article also says that:

    "Now, this topic actually did come up during the earnings call. Microsoft
    reported that it had redeemed about $1.7 billion in unearned revenue from
    its Technology Guarantee program during this quarter as the result of the
    Vista and Office launches. Microsoft had deferred that revenue collected
    from computers shipped in calendar Q4 2006 with Windows XP that would later
    have to be upgraded to Vista for free."

    Can anyone tell me what's wrong with this accounting policy?
     
    Jack, May 6, 2007
    #2
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  3. Deferring revenue instead of accounting for revenue when it was
    actually received?
     
    Dianthus Mimulus, May 6, 2007
    #3
  4. Dianthus Mimulus

    Jack Guest

    Yes, in the Microsoft example quoted, why should the income be recognised in
    the income statement before the Vista upgrades had actually been shipped?
     
    Jack, May 6, 2007
    #4
  5. Because XP was what had been sold, with a FREE upgrade to Vi$ta once it
    had shipped.
     
    Dianthus Mimulus, May 6, 2007
    #5
  6. Dianthus Mimulus

    Jack Guest

    I have several friends who bought new computers with Windows XP on them late
    last year, who would have waited until Windows Vista was released if the
    free upgrade to Vista hadn't been part of the deal. In other words, in their
    minds, they were really buying computers with Vista on them, because this
    was how it was advertised. So from Microsoft's point of view, they were also
    selling these people Vista, they didn't want XP. Therefore, from Microsoft's
    viewpoint, the revenue wasn't actually earned until Vista had been shipped
    to these people.
     
    Jack, May 6, 2007
    #6
  7. Dianthus Mimulus

    El Chippy Guest

    Bzzzt. Wrong answer, -10 points to you. A voucher is a promisary note.
    Until that "promise" is fulfilled it is a liability.

    from http://www.pwc.com/gx/eng/about/svcs/corporatereporting/05Solution120_29.pdf
    (PriceWaterhouseCoopers)

    Revenue from the sale of goods should be recognised when all the following
    conditions have been satisfied [IAS18.14]:
    a) the risks and rewards of ownership of the goods are transferred from the
    seller to the buyer;
    b) the entity retains no managerial involvement or control over the goods;
    c) the entity can measure the revenue reliably;
    d) probable economic future benefits will flow to the entity; and
    e) the entity can measure the costs incurred in respect of the transaction
    reliably.
     
    El Chippy, May 7, 2007
    #7
  8. Sorry, mate.

    Revenue is earned when the money changes hands.
     
    Dianthus Mimulus, May 7, 2007
    #8
  9. Dianthus Mimulus

    sam Guest

    Nuh uh
    If you buy a ticket to a show, the revenue isn't earned until after the
    fat lady sings
     
    sam, May 7, 2007
    #9
  10. But if that ticket says "this voucher entitles Standard Seat purchaser to
    get a one-off FREE upgrade to a luxury seat, depending on availability"
    then what was purchased was the Standard Seat, and the POSSIBILITY of a
    FREE upgrade.

    Likewise those who purchased a PC with MS WindowsXP installed were... ta
    duh ... purchasing MS WindowsXP. They were offered a FREE upgrade as an
    incentive to purchase WindowsXP.

    They couldn't purchase Vi$ta because it wasn't a product on the market
    that was available to purchase.

    IMHO the revenue should be recognised as income from selling MS WindowsXP,
    and should be accounted for when that PC was sold, and not several months
    later.

    I mean, where does that stop? Including a voucher with Vi$ta so that those
    who purchase Vi$ta get a 50% discount on a 300% inflated price for
    LongHorn?
     
    Dianthus Mimulus, May 7, 2007
    #10
  11. Dianthus Mimulus

    Jack Guest

    wisdom??? in

    Well, Professor DM, perhaps you should write to the auditors of Microsoft,
    and after explaining to them your well known international standing in the
    accounting community, suggest to them that it was quite unprofessional of
    them not to issue a qualified audit report. After all, the auditors know the
    full circumstances and obviously decided that the deferral of income was in
    accordance with current international accounting standards. Professor,
    please indicate which International Accounting Standard Microsoft has
    disobeyed and your reasons why you have come to this conclusion. I'm sure
    this information will be of great use to the international accounting
    fraternity.
     
    Jack, May 7, 2007
    #11
  12. Dianthus Mimulus

    Chris Lim Guest

    Oh dear. And you do your own accounts, don't you? Hope the IRD don't
    read these groups!
     
    Chris Lim, May 7, 2007
    #12
  13. Dianthus Mimulus

    Max Burke Guest

    In Jack Scribbled:
    Then there's the IRS implications of declaring income for tax purposes for a
    product that hasn't shipped...

    Naaa this is just DM doing the same old same old...
    I wonder why anyone still wastes time reading his 'Linux advocacy by bashing
    Microsoft' posts let alone wastes more time replying to them.
     
    Max Burke, May 7, 2007
    #13
  14. What income?

    It was a FREE upgrade.

    That's F. R. E. E. - free.
     
    Dianthus Mimulus, May 7, 2007
    #14
  15. Dianthus Mimulus

    sam Guest

    As part of a paid for product bundle.
    Free in this context means that the customer won't have to pay extra.
    The contract isn't complete until the upgrade is delivered.
     
    sam, May 7, 2007
    #15
  16. Free means something that they've just chucked in over the top of what was
    purchased.

    There is no FINANCIAL benefit for giving that to the person who purchased
    WinXP.

    Think of it as a loss leader.
     
    Dianthus Mimulus, May 8, 2007
    #16
  17. Dianthus Mimulus

    sam Guest

    Think of it as a pre ordered copy of Vista and a sales opportunity that
    no longer exists.
     
    sam, May 8, 2007
    #17
  18. Dianthus Mimulus

    El Chippy Guest

    Do you mind not advertising your sexual deviances in here you nym-shifting
    Troll.

    Oh, and denigrating the name of a decent man by associating yourself with
    it isn't nice either.
     
    El Chippy, May 8, 2007
    #18
  19. Dianthus Mimulus

    Max Burke Guest

    In sam Scribbled:
    Think of it as the [bulk] licence fees the OEMs pay to Microsoft for
    onselling Vista, (as part of a hardware package) NOT the Vista install CD's
    the customer gets from the OEMs once it was released.
    That is the deferred income being talked about here.
     
    Max Burke, May 8, 2007
    #19
  20. .... except that Vi$ta wasn't purchased - it was a free bonus add-in
    inticement to compel people to purchase WinXP at a time when hardware
    suppliers were getting uppity with Micro$oft for its lies about when the
    next version of its software would be available for purchase and the
    general public was delaying purchases.

    As for a "sales opportunity", Micro$oft made the choice to throw in vi$ta
    for free - nobody forced it to do that.
     
    Jonathan Walker, May 8, 2007
    #20
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