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| ▲ | jjav 2 days ago | parent | next [-] | | > mortgages which often come with an agreement that you won't pay it back within a number of years Not "often". Prepayment penalty mortgages can exist but I've never seen or talked to anyone who has seen one in practice. Some web searching suggests that only about 2% of home mortgages have prepayment penalty clauses. | | |
| ▲ | ipsento606 2 days ago | parent | next [-] | | > Some web searching suggests that only about 2% of home mortgages have prepayment penalty clauses. It's clear (to me) that you're talking about the US specifically, but it might not be clear to everyone. Residential mortgages are highly idiosyncratic to the country you're talking about. Try getting a 30 year fixed rate mortgage in the UK. | | |
| ▲ | ratelimitsteve 2 days ago | parent [-] | | is there somewhere where a majority or a plurality of mortgages come with a prepayment penalty? | | |
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| ▲ | apercu 2 days ago | parent | prev | next [-] | | In Canada (on many mortgages) you are only allowed to prepay a percentage per year, if you pay off your mortgage in a shorter window the financer claws back interest they would have made within that term. | |
| ▲ | globular-toast 2 days ago | parent | prev [-] | | It's standard in the UK and probably other parts of the world. |
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| ▲ | jjav 2 days ago | parent | prev | next [-] | | > For example, how do you book depreciation of a motor vehicle? For a car it is particularly easy, look up its value in one of the standard sources like blue book. What you seem to be saying is that you don't really care to track your current net worth. Which is totally sensible if you don't care about that. But if you wanted to track net worth, then you'd need to track the actual value of everything you own, which includes adjusting the value of depreciating (and appreciating) assets regularly. | | |
| ▲ | globular-toast 2 days ago | parent [-] | | This is the kind of thinking that leads to stupid stuff like "a vehicle loses 1/3 its value when you drive it off the forecourt". It doesn't, obviously, unless maybe one of the seats falls out or something. Looking up the potential market value of your car regularly is exactly the kind of ridiculous thing regular people don't need to do. Just put it in your assets as "1 car" and don't think about it again. Most people aren't going to be liquidating all their assets and moving half way across the world, and even if you are you don't need to do this. | | |
| ▲ | jjav a day ago | parent [-] | | There is nothing "stupid" or "ridiculous" about correcly tracking net worth. Also nothing wrong if you don't feel like doing it. But some people want to track value of assets, nothing stupid about that. | | |
| ▲ | globular-toast a day ago | parent [-] | | But it's not "correct" and doesn't make sense for the vast majority of people. Can you at least agree that a car doesn't lose any value just by driving it off the forecourt? Can you agree that people can have value in their lives that can't be written on a balance sheet? Most people would do well to stop thinking value exists on a single dimension. It's utterly absurd when you really think about it, but too many people are indoctrinated into this world of money and just can't think any differently. Sadly, we do all have to play the game to some extent. But you only need to understand enough about it to get by, you don't need to play day trader or treat yourself like a business that might be liquidated at a moment's notice. The point of a post like this is to strip back the bullshit and just say it like it is: finance is a bunch of children in adult bodies playing games, making bets and doing deals with each other. It's not complicated, they just have their own secret language, just like the kids in the other clique at school did. I guess it's upsetting to people who are either in the clique or want to be in the clique, though. | | |
| ▲ | dsr_ 18 hours ago | parent | next [-] | | One of you uses the word value to mean "how much money can I get in exchange for this thing?" and the other means "how much utility can I get out of this thing?". As long as you use the same word, you will run into this problem. Value is always highly context-dependent. | |
| ▲ | jjav 17 hours ago | parent | prev [-] | | > But it's not "correct" and doesn't make sense for the vast majority of people. It is absolutely the correct way to track the value of assets. Whether it makes sense for a particular person is subjective. Some people care, some don't. Clearly you don't. Nothing wrong with not caring so I don't say that negativelty. You do you, as they say. But, the fact that you don't care does not alter reality nor invalidate the math. > Can you at least agree that a car doesn't lose any value just by driving it off the forecourt? Of course it does lose value when you sign the purchase papers, this is not debatable. Not a matter of opinion. You can trivially prove this if you wanted to. Go buy a new car from the dealer, drive it a mile or less to the nearest parking lot and now try to sell that car for the same amount you paid. You will never be able to find a buyer. If you want to sell that car you will have to lower the price to get any takers. So there, you lost money. > The point of a post like this is to strip back the bullshit and just say it like it is: finance is a bunch of children in adult bodies playing games Probably not worth trying to continue to respond factually in that case. |
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| ▲ | kgwgk 2 days ago | parent | prev | next [-] | | True or false? « If you intend to hold a bond to maturity you could totally book all the future coupons and capital gains as an asset up front, it's the same thing at the end of the day. » | | |
| ▲ | reese_john 2 days ago | parent | next [-] | | Not an accountant, but I think this is false If you intend to hold to maturity then you should accrue the bond coupons over time, that’s the modal case If part of your bond portfolio is available for sale, then you should use mark-to-market accounting, which prices in the present value of future coupons and the discount rate as well. IIRC this was one of the issues with the failure of SVB, they were forced to sell their bonds
and realize a huge MtM loss | | |
| ▲ | kgwgk 2 days ago | parent [-] | | Agreed. Note that the question was directed to someone who “would encourage people doing their own accounts to think of it like this”. |
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| ▲ | 2 days ago | parent | prev [-] | | [deleted] |
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| ▲ | LeanOnSheena 2 days ago | parent | prev [-] | | CPA here again, You're poking and some very interesting concepts! There is a lot to explore. Some thoughts: - Yes money is in many ways best thought of as an abstraction. A socially agreed upon store of value that is easily exchangeable for other things of value. There is a tension (and a spectrum) between commodities that have use value and money commodities that have exchange value. In nascent market economies, commodities with use value can emerge as money commodities through consensus, that is, they emerge as socially agreed upon exchange value commodities. Think cigarettes in prison or precious metals like gold. Money commodities emerge naturally once there is enough stable volume of market activity which ensures liquidity. It's all contingent on constant market activity to keep it liquid as well as a sustained social consensus that is represents a store of exchange value. This is a lot of what Marx's Das Capital explores. - Things like vehicle depreciation are not just so the books "work" nor is the intent for it to perfectly represent how an asset depreciates. Consider a milk delivery business. I buy a delivery vehicle year 1 for $40,000 and I expect it to last me 10 years approximately. Let's say I earn $10,000 a year for the delivery business and I pay a driver $7,000 a year to deliver milk using my delivery vehicle. If i don't include depreciation of the delivery vehicle my net income is $3,000 annually or 30%. Pretty darn good! However, we know the vehicle asset was used in service of earning all that revenue, so we should include something to ensure all revenues are netted against all known expenses whether they are wages or capital assets deployed in service of earning said revenues. Otherwise we have an incomplete picture of the business performance in our annual income statement. If I include $4,000 of annual depreciation on the vehicle suddenly I am no longer profitable to the tune of $1,000 a year. This is the matching principle. Profitability needs to ensure all revenues netted against all expenses associated with earning those revenues regardless of cash flow timing. - But your point stands... The specific amount of depreciation annually is made up mostly, maybe the asset depreciates slower or faster. But there is enormous value in a rule consistently applied. Let's say you're an expert in delivery trucks and you know that the asset will last 20 years not 10... You could purchase the business at a cheap valuation because on paper it loses money annually, but you know the depreciation should only really be 2,000 and therefore the business is actually profitable all other things being equal. You leverage a widely recognized and understood standard applied very consistently as being imperfect, and you use that as a stepping stone to back into what you believe is the true value. This is where things like EBITDA come from that start with GAAP measures and back into what are believed to be better representations of business value, but it hinges on widely understood accounting standards being applied very consistently to create financial information that can be modified for other uses. |
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