DOES GAAP UNDERVALUE POST-CONTROL STOCK ACQUISITIONS? In Berkshire Hathaway's 2012 annual report, Warren Buffett, in discussing the company's post-control step acquisitions of Marmon Holdings, Inc., observed the following: Marmon provides an example of a clear and substantial gap existing between book value and intrinsic value. Let me explain the odd origin of this differential. Last year I told you that we had purchased additional shares in Marmon, raising our ownership to 80% (up from the 64% we acquired in 2008). I also told you that GAAP accounting required us to immediately record the 2011 purchase on our books at far less than what we paid. I've now had a year to think about this weird accounting rule, but I've yet to find an explanation that makes any sense-nor can Charlie or Marc Hamburg, our CFO, come up with one. My confusion increases when I am told that if we hadn't already owned 64%, the 16% we purchased in 2011 would have been entered on our books at our cost. In 2012 (and in early 2013, retroactive to year end 2012) we acquired an additional 10% of Marmon and the same bizarre accounting treatment was required. The $700 million write-off we immediately incurred had no effect on earnings but did reduce book value and, therefore, 2012's gain in net worth. The cost of our recent 10% purchase implies a $12.6 billion value for the 90% of Marmon we now own. Our balance-sheet carrying value for the 90%, however, is $8 billion. Charlie and I believe our current purchase represents excellent value. If we are correct, our Marmon holding is worth at least $4.6 billion more than its carrying value. How would you explain the accounting valuations for the post-control step acquisitions to the Berkshire Hathaway executives? Do you agree or disagree with the GAAP treatment of reporting additional investments in subsidiaries when control has previously been established?