Case Analysis Identify all the accounting policy changes and accounting estimates that Hierarchies made during 1984. Estimate, as accurately as possible, the effect of these changes on the company’s 1984 reported profits. Harbingers began to account Kobo Steel sales in US, previously it only added the gross margin on Kobo-originated equipment In the financial statement. As a result, both aggregated sales and cost of sales Increased by $28 million.
Harbingers Foreign consolidated subsidiaries are effectively included in the financial statement in falls year 1984. This change increased the net sales by $5. 4 million. Harbingers changed to straight line depreciation of plants, machinery, and equipment. Prior to this they used accelerated methods of depreciation. This Increase De net Income by SSI million. Harbingers reduced its inventory level from 1982 1984, resulting in a liquidation of LIFO (Last In First Out) inventory.
The company adjusted their bad debt allowances from 10% In 1983 to 6. 7% in 1984. 2. What do you think are the motives of Hairlessness’s management in making the chaw ones in its financial reporting policies? Do you think Investors will “see through” these change sees? It seems clear that the motives of Hairdresser’s management Is to show profitability . The senior leadership team is highly motivated to ensure stock price remains high. They are looking for way to show higher profitability given the manufacturing sector b decline in the early sass.
It seems that given the executive compensation plan, the senior executives stand the most to gain from after tax profits. In addition, Harbingers had certain loan terms that required them to maintain minimum level 3. Assess the company’s future prospects given your insights from questions 1 and 2 a ND the information in the case on the company’s turnaround strategy. Harbingers has made some difficult choices in the last year to help streamline thee business. However, my opinion is that the business made those hard decisions mostly motivated by compensation issues executive bonuses.
I feel like this typically is a bad motive. The company went through a hard time in their sector which meant that even if they made money, it wasn’t a standard they were used to. As such, I think the prospect for the company is unknown. If decisions are made only based on compensation, those are typically failed policies. However, if they get lucky, they may make that work in the long run. The short term changes certainly helped the company y from a financial perspective.