do figure accountants

He?s done it again.

This time in broad daylight.

Under the gaze of thousands of Gunns? watchers, Greg has once again manufactured a few book entries to help Gunns achieve a modicum of P&L respectability.

That boy certainly has chutzpah.

He didn?t quite make a profit, but an EBIT of $5 million loss for the first half of the 2010/11 year took a bit of work.

With asset impairment charges, loss on asset divestment and other restructuring charges totalling $50 million Gunns were a few goals down at three quarter time with the wind against them in the last stanza.

Then Greg delivered.

Three of Greg?s book entries totalling $45 million warrant a mention.

First, Gunns? trees, the ones still standing, were considered to be worth another $11 million. That was booked as profit.

The second book entry was all class. Gunns underpaid for FEA?s sawmill and that underpayment of $19 million was included as income. Shades of the previous year when an underpayment for ITC Timber?s assets of $4 million and a further $3 million for Great Southern?s plantation management assets were both booked as income.

Memories of Eddy Groves from ABC Learning come flooding back. Eddy has recently been charged by ASIC.

Profit earned from acquiring an asset was, in the past, described as ?a discount on acquisition?. It is now described in a more hubristic way as a ?gain on bargain purchase?.

It?s as if Harvey Norman advertising executives have helped modernise accounting terminology.

Gunns doesn?t always acquire bargains. When Auspine was purchased Gunns had to pay $29 million in excess of the value of the assets. That amount was described at the time ?as the goodwill ... attributable to the skills and technical talent of the acquired business? workforce and the synergies expected to be achieved from integrating the Company into the existing operations?.

The goodwill amount was not recorded as an expense but rather included as an asset on the balance sheet.

I?m struggling to get my head around Gunns Directors? willingness to include a gain on a bargain purchase as income yet continue to retain on the balance sheet, an obviously impaired asset being the goodwill on purchase of Auspine.

The financial statements are supposed to give a true and fair view.

The closure of the 2 Scottsdale mills suggests that any potential synergies that may have existed at the time of the Auspine takeover have either been utilised or have evaporated.

Gunns also reckoned the land they bought from FEA?s receivers as part of the FEA mill deal was worth $11 million rather than the $7 million paid. But this gain on bargain purchase was not included as income.

Accounting standards treat land differently from other assets.

Accountants do draw a line in the sand.

Occasionally.

Revaluation of land occurs via reserve accounts which appear in the balance sheet. It is not recorded in the P&L Statement.

The third book entry was $15 million worth of commission and fees payable as a result of Gunns? role as Responsible Entity of various MIS schemes. It is not known which MIS schemes were involved with this upwards revision of future MIS commissions, whether just one or two or whether the whole lot have been reassessed. The latter is unlikely.

Last year when Gunns paid $6 million for certain plantation management rights from Great Southern?s liquidator, Greg underlined his worth as a CEO by immediately booking $68 million as profits being expected future commission from the harvest of trees belonging to Great Southern investors.

This took the value of expected future commissions already included as income to $140 million.

Greg has just boosted this by a further $15 million. But the breakup has changed, $105 million relates to Gunns? projects whilst only $50 million is for former Great Southern projects. No explanation is given for the changes.

Hence Gunns ended up with an EBIT of a $5 million loss. Without the above book entries the EBIT would have been $55 million loss.

Part article from John Lawerence---Accountant