Argeus the Paladin
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Chapter 2
Measuring and Reporting Financial Position
A/ Nature and Purpose of the Balance Sheet
The purpose of this first statement is to set out the financial position of a business at a particular moment in time. This has generally been known as the Balance Sheet. It represents a summary of the information provided in the player account, and is effectively a listing of the balances in all of the detailed accounts, hence the name. The balance sheet sets out the assets of the player on one hand, and the claims against him on the other. The definition of the key terms are as followed.
1) Assets
An asset, for AQ-counting purposes, is essentially a resource which has certain characteristics held by the player with a view to expanding wealth and/or experience level. Those characteristics are as followed:
- An expected future economic benefit. This means that the item is expected to have some future monetary value, which could arise from whether its use in farming or from the sale of such item. Thusly, an obsolete Flame Sword is still considered an asset to a Level 130 giant, because it still has some residual value and can be sold to Warlic/Hans for money.
- The player has an exclusive right to control the benefit. This is always true in the case of AQ, an MSORPG. A player’s possessions are always exclusively his to control and benefit from.
- The benefit must arise from some past transaction or event. This means that, if you are buying a Golden Plate tomorrow, then today it is not an asset. But the day after tomorrow, it will be an asset.
- The asset must be capable of reliable measurement in monetary terms. Unless the item can be measured in monetary terms with a reasonable degree of reliability, the item shall not be regarded as an asset on the balance sheet. For example, Zeruel’s skill as an AQ player does not appear on his balance sheet.
2) Liabilities
Liabilities represent the claims of a third party against the assets of an entity, which have arisen from past transactions or events.
In the AQ environment, there are only two known types of liability, that of Z-Tokens and Guardian / X-Guardianship. These liabilities come as a parent-funded, long-term, non-refundable debenture, in terms of real-life dollar, to buy the in-game special currency or a premium in-game benefit. In a strictly AQ-counting sense, the parent or legal guardian of the player is holding a claim against the player, on the basis of moral behavior related to such things as future academic achievement or similar goals. The claim varies in terms and condition from player to player, depending solely on their legal guardians.
3) Player’s Equity
In a traditional accounting term, the Owner’s Equity is the claim of the owner of a business against the business itself. However, as AQ is an RPG, which means, in a sense, the player and the business concerned, the player account, is one and only one, the term Player’s Equity is suggested, and covers everything the player character owns apart from those gained because of liabilities, as described above. However, in a strictly AQ-counting sense, the above amount is still known as “the claim of the AQ player against his AQ character”.
Now that we have addressed the three main aspects of the Balance Sheet, the question now is, how do they inter-relate? If a business wishes to acquire assets, it must find the financing from somewhere. The major sites are loans from outside parties, farming spots, or both.
Let us consider a small example.
quote:
An AQ player, ZEROtheLORD, opened an AQ account on 1 March to commence playing, with 4500 gold as capital. Let us assume that the cash is supplied by AE, LLC, which is then transferred directly into the Player’s Equity (1500 G) and an outside party, ZEROtheLORD’s mother, in terms of Z-token purchase exchanged into gold (3000 G). The raising of the funds in this way will give rise to a claim against the character by both the player and the outside party. If a balance sheet of ZEROtheLORD is prepared following the above opening, the assets, liabilities and player’s equity will appear as followed:
quote:
Assets:
- Cash: 4500G
Total assets: 4500 G
Liabilities:
- Z-token debenture: 3000 G
Total Liabilities: 3000 G
Player’s Equity:
- Player’s Equity: 1500 G.
Total Player’s Equity: 1500 G
Total Player’s Equity and Liabilities: 4500 G
From the above, the total claims are the same as the total assets. Thusly: Assets = Player’s Equity + Liabilities. Now assume that on 2 March, ZEROtheLORD went on and purchases a Hurricane Blade for 100 G and an Ice Plate for 100 G of his cash, after farming for 500 G . His balance sheet on the 2nd looks like this:
quote:
Assets:
- Cash: 4800G
- Inventory: 200 G
Total assets: 5000 G
Liabilities:
- Z-token debenture: 3000 G
Total Liabilities: 3000 G
Player’s Equity:
- Retained Profit: 500 G
- Player’s Equity Reserved: 1500 G
Total Player’s Equity: 2000 G
Total Player’s Equity and Liabilities: 5000 G
As you can see, the above equation still hold true, and it will still hold true in any situation. This is because the equation is based on the fact that , if the player would want to acquire assets, he must raise funds equal to the cost of those assets. These funds must be provided by a source, which would shows up in the respective slot in the balance sheet. Hence, the total cost of assets will always equal the total player’s equity plus liabilities.
B/ Classification of Assets, Liabilities and Player’s Equity
1) Assets: Assets, based on the time expected to hld tem, are classified into two categories:
- Current Assets are assets which are not held on a continuing basis. In short, they are assets that the player would expect to be consumed or converted back to cash within the next 100000 points of experience. In standard accounting, current assets would include materials held within the business’ operating cycle, but in AQ-counting, as the lack of a trading/manufacturing institution is obvious, current assets would only include:
+ Houses and estates (only if the player would like to make Z-tokens from them)
+ Robina Hood’s gem collection (Duma Sunstone, and its kins)
+ Gold.
+ Z- Tokens.
- Non-current Assets are held for an expected long period of time, with the intention of being used to generate wealth rather than held for resale, although, of course, they may be sold once there is no further use for the asset. Therefore, they can be seen as the staple set of inventory for the said character. The minimum period a non-current asset is expected to be held is 100000 points of experience.
2) Liabilities. Although there are only two main types of liabilities, based on their real-life terms and conditions by the lenders, are further divided into two groups:
- Current Liabilities represent amounts that would result in an immediate promise of commitment from the player. For example, if a player is granted $100 in real life money to upgrade his character and purchase Z-tokens, with the promise of achieving, for example, 4 ‘A’s in the ongoing semester, the liability is considered current.
- Non-current Liabilities represent amounts that would not result in such an immediate promise, or one that required no binding promise on behalf of the player. For example, if the above player is granted $100 for the same purpose, but as a reward for having achieved 4 ‘A’s in the last semester, or as a birthday present, the liability is considered non-current.
3) Player’s Equity. Can be sorted into two categories:
- Player’s Real Life Equity is the gold measurement of the Z-tokens the player purchased with their own real-life money.
- Player’s Equity Reserves is the stake the player has in the character independent of real life financing.
C/ Factors influencing the form and content of the balance sheet
There has yet to be any professional and statutory standards for AQ-counting, therefore, at this moment, the only factor influencing the form and content of a AQ balance sheet is the most important conventions among the collection of traditional, standard accounting conventions, namely:
- Character Entity convention. This means that, even the game is an RPG, the player is not the same as the character they role-play, and is treated as a separate entity in the financial reports, for AQ-counting purposes.
- Money Measurement convention. AQ-counting deals ONLY with terms that can be expressed relatively well in monetary terms.
- Historic Cost convention. All assets are shown at a value that is based on their acquisition cost or its equivalent. To offset the inaccuracy caused by the lower selling price of most assets, the system of depreciation (see chapter 3) is used.
- Going Concern convention. This convention states that, in the foreseeable future, the player in question shall not discontinue playing/delete/otherwise cause fatal damage to his account, and that the player will continue playing at the same pace in the foreseeable future.
- Dual Aspect convention. This states that each transaction has two aspects, both of which will affect the balance sheet. For example, when a player character kills a Demon Knight, his assets and player’s equity each increases by 200 G. When a player character purchases a Golden Axe, one of his assets (cash) goes down by 550000 G, while another asset (Golden Axe) goes up by the same amount.
- Stable Monetary Unit convention. This holds that Artix Entertainment, LLC. and all the people in charge of the company’s programming, including but not limited to Captain Rhubarb, Kalanyr, Chii, and Artix himself, would not, in the foreseeable future, change the value of the Gold or Z-Token currencies or their exchange rate over time.
- Gold Basis convention: All assets are to be valued by gold. Anything that costs Z-Tokens shall be priced according to the gold-Z-tokens exchange rate of 200 Z = 3000 gold. Any purchase by real-life dollars is to be converted into Z-tokens, and then back to gold.
- Training value convention. This convention states that the value of cash spent on training the player’s stats will be valued as a stable, non-refundable, non-current asset for evaluation.
D/ How to interpret an AQ Balance Sheet
From the balance sheet of a particular AQ character, the following can be deduced.
- The liquidity of the character. This is the ability of the player to re-equip the character with more suitable equipment from his liquid current assets, namely cash and Z-token. Liquidity is particularly important because the efficiency of farming in particular key levels depends a great deal on the type of equipment that the character has. Without good liquidity, the character runs a high risk of devaluation.
- The “mix” of assets held by the player character. Too much of either kind would not bid well for the player concerned. Players with too much of their funds tied up in non-current assets run a high risk of devaluation, while players with too much current assets could mean that they are not investing as much as the norm, and could mean obsoleteness.
- The financial structure of the character. The relative proportion of total finance contributed by the player himself and outside parties (namely, his parents/legal guardians) can be calculated to see whether the character is heavily dependent on outside financing. Heavy borrowing from legal guardians in terms of real money, though could greatly power up the character, would be an unstable method of growing the character, and may prove the player’s inability to properly farm, as well as imposing further demands from the outside parties for the player to make real-life commitments. Note that funds raised by the character by means of farming do not impose such obligations.
E/ An Exemplary AQ Balance Sheet.
quote:
Sierra_Nocturne, Level 90 Paladin
Balance Sheet as at 30 April 2008
Current Assets
Gold: 220000
Gold-equivalent Z-Tokens: 30000
Gemstone Inventory: 230000
Tiki Hut (1): 30000
Total Current Assets: 510000
Non-current Assets (2)
Spell Inventory: 630000
Weapons Inventory (3): 610000
Shield Inventory (3): 400000
Other Equipment and Pets Inventory: 120000
Armors Inventory (3): 300000
Uber Inventory: 5500000
Skill Training Inventory: 450000
X-Guardianship Equivalent (4): 120000
Total Non-current Assets: 8130000
Total Assets: 8640000
Current Liabilities
Z-Tokens equivalent: 450000
Total Current Liabilities: 450000
Non-Current Liabilities
Z- Token Equivalent: 1200000
X-Guardianship equivalent (4): 120000
Total Non-current Liabilities: 240000
Total Liabilities: 690000
Player’s Equity
Player’s Real Life Equity: 1350000
Player’s Equity Reserved: 6600000
Total Player’s Equity: 7950000
Total Liabilities and Player’s Equity: 8640000
Notes:
(1) Tiki Hut is to be sold within a month for Z-tokens.
(2) Including valued Z-token purchases.
(3) Excluding uber purchases.
(4) Valued according to the Gold Basis convention.
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