ACCOUNTING 101It seems like a miracle that our leader was able to convince BP to
establish a $20 billion slush (oops, escrow) fund tocompensate those hurt by the ongoing oil plume in the Gulf of Mexico .
After all, he had no constitutional power to force them to do so; so had
to resort to Chicago-style arm twisting.But, let us take a closer look at the effect on BP’s finances:
1. BP will establish a $20 billion fund, but will pay only $7 billion into
it during 2010.2. BP is a British corporation, but has a very large operating entity in
the US.3. By Generally Accepted Accounting Principles ( GAP), BP must book the
entire $20 billion expense in the year accrued.Therefore, they will book a $20 billion expense in 2010, reducing their US
tax liability by $7 billion.4. Our leader also convinced this massive corporation to show their
concern for the “small people”by withholding dividends to their shareholders for the last 3 quarters of
2010.This reduces their outward cash flow by about $7.5 billion, including
approximately 40% of that amount to US citizens.Assuming that the Bush tax cuts will survive through 2010, the US Treasury
will lose another $450 million in taxes on that amount.We won’t even discuss the effect on the US economy.
Let us put the results into a table easily understood by the small people:
BP Cash Flow :
o Escrow funding ($7 billion)
o Dividend saving $7.5 billion
o Tax savings $7 billion
o Net favorable cash flow : $7.5 billion
US Treasury Tax Receipts:
o BP Corporate income tax ($7.5 billion)
o BP Shareholders ($0.45 billion)
o Net unfavorable tax receipts ($7.95 billion)
I guess we really should expect this. After all, our leader is the most
inexperienced man in any room he enters.
