Inventory and payroll

[Christopher Browne]

On Tue, 12 Sep 2000 13:11:49 +1000, the world broke into rejoicing as
"Phillip Shelton" <shelton@usq.edu.au>  said:
> So is there any validity in multiplying the number of shares I bought in
> December 1997 at $5.00 a share with the current value of $10.87 a share?

If the value is $10.87, then there's no multiplication involved; the 
estimated value is simply $10.87.

If, however, the _price per share_ is $10.87, then it would be legitimate
to multiply $10.87 by the number of shares to provide an _estimate_ of the
present value of that portion of the portfolio.

> And there in lies a crux for this matter. What is the cost of a stock. Are
> we recording historical cost or current cost.  If it is current cost where
> do we recognize the commission that we had to pay the brocker?

The present estimated value can vary from second to second; while it may
be interesting and valuable to estimate the ongoing value, it _doesn't_
make sense to track these estimates as transactions in their own right,
when all they do is vary.

And you're quite right; the treatment of commissions is part of the
"wrench" that shows that having "continuous transactions" isn't very
sensible.

The historical cost for a stock trade includes the amount paid to the
broker for commissions, and whenever a sale takes place, there will be
another bit of commission paid.  

The "continuous" transactions are a bit like Schrodinger's cat; exactly
one of them, namely the sale transaction that actually takes place, will
include some commission.  Other "virtual" transactions, that _don't_ take
place, _don't_ include a commission cost.  Or, arguably, _each_ one should
include the commission, as well as reverse out the commission estimated
for its predecessor, thus leaving you with, rather than a "partly dead,
partly alive cat," instead a "partly transacted, partly not, commission."
--
cbbrowne@acm.org - <http://www.hex.net/~cbbrowne/linux.html>
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which Part A consists of tricking the hero into unwittingly
helping me and Part B consists of laughing at him then leaving
him to his own devices."
<http://www.eviloverlord.com/>