I-Newswire: Royal Dutch Shell Plc, the newly merged giant Anglo-Dutch multinational, destroyed $2.9 billion in shareholder value in 2005…

Royal Dutch Shell Plc, the newly merged giant Anglo-Dutch multinational, destroyed $2.9 billion in shareholder value in 2005 simply as a result of the accounting policies they use.
(I-Newswire) – Lisbon, Portugal ( i-NewsWire ) February 3, 2006 – Royal Dutch Shell Plc, a global group of energy and petrochemical companies, permanently destroyed $2.974 billion of shareholder value during 2005 as a result of the application of the stable measuring unit assumption in the accounting of their Retained Income.
This amounts to 11.75% of their recently announced record total income attributable to shareholders of $25.311 billion in 2005. The real value destruction of $0.36 per share is 156% of the fourth quarter dividend of $0.23 per share ( subject to exchange rates ).
Shell implements the stable measuring unit assumption in accounting its Retained Income. Retained Income is a constant real value non-monetary item and cannot be updated in terms of Historical Cost Accounting rules in a low inflationary economy.
Retained Income is in essence the same as cash in a zero interest bank account under the Historical Cost Accounting model.
If all Shell’s activities had been conducted in a hyperinflationary economy during 2005 they could have updated Retained Income in terms of International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies. The $2.974 billion would not have been permanently destroyed and in stead could have been paid out to shareholders in dividends.
They are not allowed to do this in a low inflationary economy in terms of Historical Cost Accounting rules. IAS29 is only applicable in hyperinflationary economies.
If Shell continue accounting their Retained Income based on the Historical Cost Accounting model for the next ten years the combination of low inflation and the stable measuring unit assumption may permanently destroy an additional $29.74 billion of shareholders´ real value in their Retained Income. Their Retained Income was $90.578 billion as at the end of December 2005.
Retained Income may be declared as dividends to shareholders. Shell’s shareholders permanently lost $2.974 billion in 2005. They may also never receive that $29.74 billion over the next ten years when Shell apply the stable measuring unit assumption to account their Retained Income.
Changing over to Real Value Accounting™ will stop the destruction of shareholder’s real value in Shell’s Retained Income and may gain the petrochemical giant’s shareholders at least $29.74 billion over the next ten years.
( Value date: Dec 2005 – US CPI 196,8. All the above values have to be updated as the US CPI changes every month. )
Contact
Nick Smith
RealValueAccounting.Com™
Tel +351 918386974
www.realvalueaccounting.com
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