Question

Group discussion,

As an accountant for a large clothing manufacturer, the CFO has asked you to prepare the inventory valuation adjustment. As you had done in previous years, you applied the lower of cost or net realizable value rule to each major category of inventory, which resulted in a material write-off of $100,000. This write-off was primarily due to the men’s clothing line experiencing poor sales over the previous year. Upon review of your analysis, the CFO has requested that you apply the LCNRV rule to the total of inventory. Due to the success of the women’s clothing line, no write-off would be necessary as the combined net realizable value of both clothing lines is above the combined cost. The CFO argues that all clothing is essentially the same and should be combined for such an analysis. Further, the CFO states that if the company takes a large write-off, it would place the business in a difficult financial position and would most likely result in large layoffs. Discuss your ethical responsibilities in this situation.

This is a group discussion about that scenario.

Answer 1

Answer to the question :

Below given are my strong views which will be presented in group discussion

1. I will not recommend for a large write - off which will affect the company's financial position and also will have adverse impact on employees who may lose their job.

2. Company can increase the production of women's clothing line and decrease the production of men's clothing line

3. Alternatively company can change the pattern of men's clothing in accordance with fashion trends prevailing

4. If company follows above suggestions , the man power can be shifted from one section to other as per the requirement and production can be done smoothly

5. Company can sell off accumulated inventory of men's clothing lines at an attractive discount to dealers which will help to avoid keeping dead stock and to use the sale proceeds for working capital.