Doubling the historical trend isn’t justified just because a recession is on its way. The percentage is too large for such an uncertain situation. Even though a recession is coming, these customers may be perfectly well on their reputation of paying back; Chan shouldn’t be too over concerned. Alternatives: a. Chan should recalculate the estimate of doubtful accounts if percentage of sales is to be used. b. Or, use the same method (Identification method) as he and Baaz have been doing it in prior years.
Analysis of Issues: a. In a way, doubling the percentage of doubtful accounts is a safe move for Chan, as Baaz still holds interest in the receivables. If any portion becomes uncollectable, Chan solely bears the risks associated. However, buy-out agreement would nullify this procedure, as Baaz’s equity would adjust to any uncollectible receivables and allowance excess. In addition, no matter how big the receivables are, 5 years is more than enough time to collect or write them off. Recommendation: a. My recommendation is to recalculate the allowance according to last years, using the same Identification method used in prior years.
Chan will need the data Baaz used when he calculated his allowance. 2. Inventory Issues: a. A sizable amount of inventory has been written off, yet still physically there in the warehouse. Therefore a future sale of these inventories is still possible. Alternatives: a. If the inventory is as big as it sounds, they should reconsider doing some marketing research on why the product isn’t selling so well, lower prices, promotions for the items, or give them out as promotions, find any way to turn the inventory into revenue rather than disposing it.
The Essay on Inventory management system 2
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However Chan and Baaz will need to discuss on their choices. b. If no revenue can be made, Chan will need to explain to Baaz regarding this huge write-off. Analysis of Issues: a. This issue also holds a huge interest for Chan. It is possible that he wants to get rid of this inventory so he could lower costs to the buy-out deal. Alternatively, he could be losing a gain depending on the value of these items. Sales did not stop completely, it was only slow moving. Again, future sale is still possible. Recommendations: a. Chan and Baaz need to further discuss regarding the inventory.
Nothing else can be done until the negotiation comes to a firm conclusion from both parties. 3. Amortization Issues: a. Personal computer being amortized on a 40% declining balance scheme due to “risk of technological obsolescence. ” b. With a 40% declining balance, the computer will be obsolete in more or less 3 years depending on period of use, depreciating dramatically on its first year Alternatives: a. Unless the company has a serious need and thirst for the most updated personal computer system, Chan will need to discuss this with Baaz again, regarding the amortization method. b.
Another alternative is to stick with the straight-line method, similarly to prior office equipment. Analysis of Issues: a. A very aggressive amortization method was chosen, most likely to lower the cost of buy-out by lowering income. Recommendation: a. Chan should make an appropriate estimated useful life of the asset, and use straight-line amortization. b. I would further recommend prorating by month rather than doing full year amortization. This method would benefit both Baaz and Chan, keeping in mind that there is nothing wrong with full year amortization to current and prior years.
On the other hand, if the amount from prorating is immaterial, then with the additional consent of Baaz, the policy can be kept as is. If Chan does not accept my recommendations to renegotiate the matters mentioned above, then I may be forced to contact Baaz directly and inform him that his interests may be in risk. If conflicts arise, I will be expecting to assist in the renegotiations and maybe further explain my findings and analyses. So far these problems do show conflict of interest and may need to take precautions with Chan’s ethetical behaviour.
The Essay on Scientific Method and Participant Observation
In the article, “Researching Dealers and Smugglers,” Patricia Adler discusses her and her husband’s experience using participant observation to collect data from drug dealers and the problems this qualitative method brought. A qualitative method focuses on collecting rich, non-statistical data. This method involves face-to-face interviews and actual participation with the group being researched. ...
