02 April 2018

Accounting Trick

Marv, as I was trying to get to sleep, presented me with The Horse Riddle.




Skipping the stock market jargon used in the vid...

He starts with $60.  Actual cash on hand is $60.
Buys a horse.  He has actual cash on hand of $0 now.
Sells horse for $70.  Actual cash on hand is $70.
Buys horse back for $80.  Actual cash on hand is...

This is where the trick happens.

If he took on debt to gather the $80 then cash on hand is now -$10.

He now sells the horse for $90, repays the debt and has $80 cash on hand.  $20 profit.

The riddle doesn't say if he borrow money or not, nor does it state that our horse trader only has $60 on hand.

Let's try it again, but our trader has $1,000 on hand.

He starts with $1,000.  Actual cash on hand is $1,000.
Buys a horse for $60.  Actual cash on hand is $940 now.
Sells horse for $70.  Actual cash on hand is $1,010.
Buys horse back for $80.  Actual cash on hand is $930.
Sells horse for $90.  Actual cash on hand is $1,020.

Same $20 profit!

Because he's "borrowing" against his pile of cash rather than incurring debt.

HOWEVER

There's a non-transactional way of looking at it where the start position is compared to the final position.

Starts with $60, ends with $90.  $30 profit.  This method doesn't care how many steps are involved and what their values are.

VAT likes this method.  So do labor unions.

Please note, don't hit a friend with this puzzle at 0130 as they're trying to get to sleep.





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