Plug Hong Kong Disney’s bottomless cash sinkhole forever and ever, and use its magic land for homes
Disneyland deficit doubles to more than HK$345 million
SCMP, February 21
And of all the lame excuses, they blamed depreciation.
For their benefit, and also for the benefit of certain people who cannot distinguish a profit and loss account from a balance sheet, let me explain a very simple concept of accounting.
If you buy a piece of equipment for your company and you expect it to last 10 years before it is worn out and needs replacement, you do not deduct its entire cost from the company’s income in the year you bought it but spread that cost over the 10 years of the equipment’s expected lifetime.
This has the effect of setting costs against related revenues and, by thus smoothing out the profitability of the company, presenting what auditors call “a true and fair view” of the company’s affairs.
Take note of that word “fair.” It is not an exact rendering of money in and out during any given period. For that you go to the company’s cash flow statement. But it does give you the best possible picture of how the company is doing on an ongoing basis.
A company’s chief finance officer can get it wrong, of course, by mistakenly opting for too long or too short a period of depreciation on any given asset. He or she can even try to boost earnings in the shorter term by deliberately understating the depreciation charge on this asset.
But the concept of depreciation has been around for a long time and between the derision of bankers and investors for false accounting on one side and the responsibilities of corporate auditors on the other, you can pretty much trust what the notes to accounts tell you about depreciation policy.
Thus when people start whingeing about losses caused by depreciation, you would do best to press your lips together and blow them a loud raspberry.
Their problem is putting too much money into assets that generate too little income. To their embarrassment, their depreciation policies show it.
The additional irony (well, let’s not call it hypocrisy) of the excuses in this case for ongoing loss after only a brief interval of slight profit is that the invariable remedy they offer is to pour good money after bad as capital investment in this growing sinkhole.
And then they have the temerity to tell us that the very reason it loses money is its capital investment. This is what blaming depreciation amounts to.
The big question here, and I state it as a question because only the Walt Disney Company’s accountants and auditors know for sure, is rather how much money Disney takes off the top as manager of our Disney park before disclosing the results of the joint venture with our government.
If I were manager of that park, for instance, I would not have the joint venture directly buy the soft drinks sold there but first buy them myself as manager and then sell them at a profit to the joint venture, leaving it with an attenuated profit, if any, on resale to the park’s visitors.
That is how I would do it. Can we have a statement from the Walt Disney Company, please, saying that this, or anything of the sort, is not what it does?
And if such a statement is not forthcoming, can we please have an alternative statement saying how profitable the management of the park has been to the shareholders of the Walt Disney Company, as opposed to the separate profitability (or lack thereof) of the park as a joint venture with the Hong Kong government?
Consider this for a moment. Here we spend a significant proportion of our most valuable treasure, land that could be used for housing, to promote the dated video and trinket offerings of a foreign film studio to mainland tourists who already have plenty of amusement parks, including a Shanghai Disney.
And what do we get for it? Let’s see now. Among other things that we don’t need, we get some menial jobs in what is already a full employment economy and we get an ultimatum to spend more than HK$100 billion (US$12.9 billion) on a third runway so that foreign-owned airlines can carry these mainlanders here.
Bad trade, I say.