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AFAIK there is no substantial evidence that the Kindle Fire is being sold as a loss leader however I can imagine the profit margins are slim.
by cas 15y ago
AFAIK there is no substantial evidence that the Kindle Fire is being sold as a loss leader however I can imagine the profit margins are slim.
- tomkarlo 15y agoGiven that no kindles fires have shipped, they haven't booked any revenue or costs for them yet, either.
- ericbrunstad 15y agoNot shipping doesn't imply no costs. A company could produce many million units of a product but be unable to ship them for regulatory reasons, for example.
- rbranson 15y agoI'm pretty sure their vendors would disagree.
- tomkarlo 15y agoI'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.
- holdenk 15y agoIts been awhile since I took an accounting class, but lets say my cost of producing the kindle fire was $20 and my expected ability to sell it was at $15, I would book my kindle inventory at $15 on the books even though its acquisition cost was higher (i.e. you put it on your books at the lower of acquisition cost and expected disposal value). This has only been part a GAAP since 1990 though.
- polymatter 15y agoI'm not sure why you're being downmodded, you're absolutely correct. IAS 2[1] states "inventories shall be measured at the lower of cost and net realizable value", which is exactly what you said. IAS is the International Accounting Standards, which is what pretty much all accounts meet. Inventories mean stock. Net realizable value means what you can get for them. US GAAP covers this as well (though I can't find a reference right now). Showing your inventory at $20 per unit, when you can only expect to make $15 per unit selling them, would be overestimating the value of your stock. A competent auditor wouldn't sign off on your accounts like that. [1] (http://www.icaew.com/en/library/subject-gateways/accounting-standards/ifrs/ias-02 http://www.icaew.com/en/library/subject-gateways/accounting-...) (from a trainee accountant)
- deleted 15y ago[deleted]
- rbranson 15y agoNot exactly. While you are correct that their profits would not necessarily be impacted, it's because the purchased goods or raw materials are booked as inventory (asset), and not part of COGS (liability). The cost of constructing the new Kindles is still booked, just under a different part of the book. Once the devices are sold, the amount changes from an asset to a liability.
- deleted 15y ago[deleted]
- tomkarlo 15y agoThat's the point - we're talking about their Q3 profit. The parent post suggested that the Kindle Fire might have depressed Q3 profits, which is impossible given that it's not being sold yet. FYI, once it's sold, it's neither an asset or a liability - it's no longer reflected on the company's balance sheet. The revenue and COGS show up on the income statement, and may also be reflected on the cash flow statement. But they're off the balance sheet.
- gujk 15y agoYou may be surprised. Amazon is expert at "ship now, pay vendors later". In many areas, Amazon maintains a negative layover from when they pay vendors to when customers pay Amazon.
- WalterBright 15y agoI've ordered a kindle fire, and Amazon has not yet charged my credit card. So I don't see how they could book the revenue yet.
- chugger 15y agoThey're losing $50 per kindle fire.