It appears there is quite a bit of misunderstanding regarding the recent article that Microsoft expects to break even on their Mojang acquisition this fiscal year. Lets clarify what this actually means.
First off, know that the time period they are referring to is FY15. This is from July 2014-June 2015.
Now, if you read the entire article, you will notice it says they expect the Mojang acquisition to break even on a GAAP basis. What is GAAP? GAAP is an abbreviation for Generally Accepted Accounting Principles. Financial statements in the United Statements are prepared on a GAAP basis. So when they say they will break even on a GAAP basis, they are indicating that on their income statement, they will break even on this acquisition in this fiscal year. Now, before we just immediately assume this means they will recover the full $2.5 billion during this fiscal year, a quick understanding of GAAP is necessary. With GAAP, expenses are recorded based on the matching principle. This says that an expense is recorded in the same period as the revenue that was generated as a result of incurring that expense. In other words, when you purchase an asset, you do not immediately expense this asset. Instead, you will depreciate it over its useful life, as it is providing revenue over its entire life. There are obviously numerous depreciation methods depending on circumstances, but that is quite frankly, irrelevent to the point being made here. Now, depreciation is only for a tangible asset (think a computer, or a vehicle). Many asset purchases are intangible (think brand name, such as Coca Cola, or patents with value, etc). Provided that a purchase includes payment for these intangibles, Microsoft will record Goodwill on their statements. Unlike the tangible assets being depreciated, goodwill is never depreciated. Instead, it undergoes an asset impairment test to determine if it has lost any of its value. Provided that it has lost value, an entry is then made to an impairment charge account. It isn't until the impairment and depreciation entries are made that the income statement is affected in any way whatsoever by the initial investment.
So, applying this to Mojang, what can we determine? First off, a majority of the purchase is Goodwill. Mojang doesn't have anywheres close to $2.5 billion in assets. That being the case, the depreciation itself in FY15 will be extremely minimal. The only other cost, then, would be the impairment charge related to the goodwill (if there even is one...if the goodwill did not lose any value, this would be $0). In other words, by Microsoft "breaking even" on this investment in FY2015 on a GAAP basis...they will not be collecting $2.5 billion. Instead, they will be collecting a small fraction of that, which will then flow to the income statement and show as them breaking even.
Money can't buy happiness. Just video games, which make me happy.
