Accounting by Charlie Munger

[flash_os]

What he mean by "...you have made a profit equal to 50 percent of the face value of the bonds."

Does he mean with Profit the Assets in Balance sheet?

"
In the heyday of Venice,
they really made double entry
bookkeeping popular. They taught it
in all the math books of that era just
the way people draw arithmetic now.
Anybody who was anybody in Venice
knew double entry bookkeeping the
way you know how to scratch your ear.
This was very helpful to Venice, which
at one time was the most important
commercial city in the world. And so
these accountants with this glorious
background got into establishing their
accounting principles. What did they
finally come to? This is relatively new
once sort of after the mess unfolded.
They came up with this loon. They said
if you are on the edge of extinction,
your credit is utterly destroyed, you
have no cash to do anything, to buy
anything, but your outstanding bonds
are selling at 50 percent of their face
value -- you have made a profit equal
to 50 percent of the face value of the
bonds. It’s not a profit you can eat or use
because you don’t have any cash with
which to buy the bonds, but in terms
of the financial statement, as your real
[financial] health gets worse and worse
your profits get higher and higher. I’m
not kidding! This is accounting the way
it is ordained in this country as we sit
here. They are teaching this kind of
stuff to our children and forcing it on
our companies. It is absolutely insane."