Purchase Solution

Writing off inventory

Not what you're looking for?

Ask Custom Question

Tech Firms Stand to Gain from Huge Write-Offs
LEAD STORY-DATELINE: USA Today,
July 16, 2001.

Many high-technology companies, like Nortel Networks, Micron Technology and JDS Uniphase, have written down massive amounts of their inventory. For example, Nortel Networks revalued some of its inventory parts at $0, though the inventory initially cost Nortel $650 million.

Companies are required to report whether they write off the cost value (or book value) or their inventory even if they do not dispose of the inventory. Later on, they may sell this inventory but are not required to report the sale for cash of previously "worthless" inventory. The effect may be that in future years, when the inventory is sold, profits are overstated.

Also in the article, JDS Uniphase said it will write off $250 million of its inventory but promised to disclose any future sale. On the other hand, Micron Technology, which wrote down $260 million, won't disclose any future sale. Should the Securities and Exchange Commission do anything? Why?

In your own words, please post a response.

Purchase this Solution
Solution Summary

This problem involves the fundamentals of accounting, including whether the Securities and Exchange Commission should do anything. It is a brief 110 words.

Solution Preview

Hi there,

The main issue here has to do with transparency for investors. The reason that financial statements exist to begin with is so that investors can have a ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

View More Free Quizzes
Related BrainMass Solutions

  • Irregularities in inventory of a firm

    There needs to be a proper segregation between the person writing off inventory as obsolete, than the person that is closing the warehouse at night with no one else around, where he or she could be selling it and pocketing the cash, at a discount to retailers

  • inventory

    This posting gives you an in-depth insight into writing down of inventory

  • Income Statement: Incorrectly Recorded Rent Revenue

    I show the student how to adjust the income statement for errors in rent revenue, inventory valuation issues, and writing off receivables that were over five years old. A step by step explanation is provided.

  • Write down of high-technology company's inventory

    Companies are required to report whether they write off the cost value (or book value) or their inventory even if they do not dispose of the inventory.

  • Purchase of Fixed Assets for Cash

    The purchase of inventory for cash d. The purchase of inventory on credit e. Customer payment of an account receivable f. Writing off a customer's bad debt (assume the allowance process is in placw) g. The sale of a fixed asset for cash h.

  • Clear Ltd. manufactures Plasma TV and distributes to retaile

    Jackson wonders how he should deal with the existing inventory, Plasma TV. The company accountant, Cindy recommended writing off the inventory.

  • Accounting Principles: Corrections using GAAP

    (e) Goodwill should be recorded and written off over a reasonable life. Tax law presumes 15 years, but GAAP expects a yearly review for impairment. Writing all of it off immediately is a violation of the matching principle.

  • The Biggest Sales Day of the Year

    In addition to this, counting the organization's stock amount, writing the reorder and even considering the arrangement of having a 'safety stock' so as to get the company off the risks of shortages which may arise unexpectedly (Barrow, 2009).

  • Compute Industry Production Capacity

    Assume Digby scraps all capacity and inventory this round, completely writing off those assets and escrowing the proceeds to a settlement fund, and assume these lawsuits will have no effect on any other products of Digby or other companies.

View More Related Solutions