Clear Ltd. manufactures Plasma TV and distributes to retaile
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Clear Ltd. manufactures Plasma TV and distributes to retailers under her own house brand. Recent trend in the market seems to favour the adoption of TV using either LCD or LED technology. Most major retailers are switching to offering LCD and LED TV. It is very likely that Plasma TV will become obsolete within the year. Sales for Plasma TV have declined rapidly over the past few months.
Jackson Lim, the CEO for Clear betted on the Plasma TV technology few years ago and hence the company is now holding an inventory that can become obsolete. The Board of Director has made a decision to switch to manufacturing the latest Smart LED TV. Jackson wonders how he should deal with the existing inventory, Plasma TV.
The company accountant, Cindy recommended writing off the inventory. The company financial performance had not be ideal last year and Jackson feared that taking this action would cause the financial statements to be even worse. This would adversely affect the reputation of the company. The existing shareholders might not like to see a poor performance in the financial statements. Therefore he instructed Susan to maintain the existing inventory in the Statement of Financial Position (Balance Sheet) for the current year.
Give 2 points/comments for each question:
1. On the decision that Jackson made
2. On the dilemma Cindy is facing.
3. If Cindy approaches you as a friend concerning this, what would you tell her to do?
4. What could be the appropriate ways to deal with the inventory?
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Solution Summary
Clear Ltd. manufactures Plasma TV and distributes to retailers under her own house brand. Recent trend in the market seems to favour the adoption of TV using either LCD or LED technology. Most major retailers are switching to offering LCD and LED TV. It is very likely that Plasma TV will become obsolete within the year. Sales for Plasma TV have declined rapidly over the past few months.
Jackson Lim, the CEO for Clear betted on the Plasma TV technology few years ago and hence the company is now holding an inventory that can become obsolete. The Board of Director has made a decision to switch to manufacturing the latest Smart LED TV. Jackson wonders how he should deal with the existing inventory, Plasma TV.
The company accountant, Cindy recommended writing off the inventory. The company financial performance had not be ideal last year and Jackson feared that taking this action would cause the financial statements to be even worse. This would adversely affect the reputation of the company. The existing shareholders might not like to see a poor performance in the financial statements. Therefore he instructed Susan to maintain the existing inventory in the Statement of Financial Position (Balance Sheet) for the current year.
Give 2 points/comments for each question:
1. On the decision that Jackson made
2. On the dilemma Cindy is facing.
3. If Cindy approaches you as a friend concerning this, what would you tell her to do?
4. What could be the appropriate ways to deal with the inventory?
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1. On the decision that Jackson made
-- Jackson is afraid of how this will affect the reputation of the company due to what the shareholder opinion would be. However, because Jackson has told Susan (Cindy?) to maintain the existing inventory. This will produce inaccurate financial statements, because the inventory is still be carried that is obsolete.
-- Jackson is intentionally deceiving investors, and can be held legally responsible by the investors. When the investors find out what happened, he will have to restate his financial statements to show the correct accounting treatment, and will have to answer to civil charges as to why he misled investors.
2. On the dilemma Cindy is facing.
-- Cindy's choices are straightforward. She can either listen to the CEO and continue to carry the existing inventory or she can continue to ...
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