Question

GOING CONCERN Issues....Who is at fault for NOT providing the effective guidance on the future viability of an entity....A closer look at Sears and Toys R Us...

Answer 1

Going Concern Concept:-

This concept defines that a particular business unit has a reasonable expectation of continuing business for an indefinite period of time. A business unit deemed to be a going concern not a gone concern. According to this concept financial statements are prepared. On the basis of this concept fixed assets are recorded at original cost rather than at realisable cost. And the depriciation method followed to depriciate the value sysyematically.The business is considered as going concern so the original cost of asset become more relevant than the realisable value. Similarly,prepaid expenses are treated as asseteven though these are virtually unrealisable. In the view that,the prepaid expenses will be realised in the future period of the business uint.

Case Of Sears and Toys R Us:-

The iconic New Jersy Based company Sears and Toys R company which was established in 1948 filed for a bankruptcy recently and announced to closed down its stores. The decision has been taken for the inability of the company to operate the store profitably and mounting amount of debts. While intense price competition from mass retailers like Walmart,mazon etc. has contributed to the company woes, mainly the management is responsible for not providing the effective guidance on the future viability of the entity. The management of the company failed to innovate new business models, new technology and to provide good customer experience.

New Business Model:-

The company was unable to forecast the future upcoming threats for the business. The management had never put any effort to re-imagine the business model of the company in the future comepetitive e-commerce market and to present itself in a more engaging and alternative way. Management was unable to defend itself aginst a number of external threats like stiff competitive pricing, qualitative and innovative products and robust online marketing. The industry has been struggling for years from design,product development,wholesale point of view and retail marketing. To succssed in the business the companies need to be more innovetive in the concerned product or services and to remodel its business according to the new age. But the Toys R Us has severly failed in this.

New Technology:-

In the online retailing era the online shopping destinations like amazon has changed the customer's expectation. It's providing convenience to buy products from your own couch at low price and other facilities like free home delivery system. But the Toys R Us has failed in this regard. It was unable to provide convenient online shopping experience and not innovative and ggod at this.

And also in this new technology era children are more attracted towards online gaming than any stuffed toys. But the company was more concentrated on the stuffed toys than creating a new range online games like it was more depended on bricks and mortar stores than developing its own retail online shopping.

Customer Experience:-

Good customer experience was non existence for the company in recent years. The management has failed to create positive experience in customers because it was unable to maintain its stores properly even if it was unable to maintain general upkeep and the good condition of the store. In todays online shopping days if a unit more dependent on bricks and mortar stores it need to make sure they are not only enticing customers but also providing them with a pleasant experience. Positive experience creates loyal relationship same as bad experience creates misfortune for the unit.

The inability of the management to track on debt and control on debt also a big reason for the failure of the company. It was failed to give payments to its suppliers and also the payment of its employees. These are main reasons for the failure of the company Sears and Toys R Us.