Accounting Method for Inventory - Assignment Example

Accounting Companies should be required to use the same accounting method for inventory. That would ensure that there is no exploitation of the customers because of the inventory methods that are been used by companies. The other advantage of that is the fact that there will be uniformity in the reporting of financial statements by the various companies. Uniformity will allow for comparisons in the industry as a whole and that will ensure that the best-performing entities are noted. The other advantage of uniform accounting is the fact that it will be easier for the relevant authorities to check the books of accounts when it is required.

That will reduce any instances of tax evasion or any other crimes that are associated with the manipulation of financial records. The inventory accounting method that I would recommend is the use of the average method. The average method is fairer in the setting of the price on the side of the seller and the customer. That will ensure that the seller does not incur any loss because of changes in prices that may be significant. The method will also ensure that there is no artificial shortage caused by the sellers in an attempt to manipulate their profits.

Question 9 In the case of World com, the recording of expenses as capital expenditure caused an overstate mate of the company profits. The profits of the company are understated because the company recorded fewer expenses. The company also tends to build on its financial position because the expenses are been recorded as capital expenditures that usually build on the financial position of the company. The evil behind the recording of the expenses as capital items is the fact that the financial position of the company is wrong.

The profits will be overstated and that may attract more shareholders to invest their money in the company in an attempt to increase their wealth. The shareholders will make their decisions based on the wrong financial reports that we recorded by the company. In the case of the company’s bankruptcy, the largest losers were the investors who had put their money into the business in an attempt to increase their wealth. Question 10 My advice to them would be for them to consider the consequences that are involved in their decision.

The loan is advantageous because there will be availability of the funds when they are most needed. However, the disadvantage of the decision is the fact that the loan will make them have a financial obligation that must be obeyed to continue operating their business. They should first consider other options before deciding on the loan. However, from their current situation and the size of the business, the better option would be to go for a loan. Question 11 If my parents are planning to get a retirement, the first thing that they should do to have a comfortable retirement is for them to cut their expenses.

Concerning their investment decisions, bonds would be a good venture because for them they should not take up high-risk ventures. Since the analysts have predicted an increase in the interest rates, they can put half of their equity in bonds and the other half in short-term investments. That will diversify their risk base and that will minimize the probability of loss. Question 12 In my case, would be willing to purchase shares from a company that does not pay dividends. The willingness of a person to receive dividends or not to receive them is usually based on the investment goals of the person.

If a person were after long-term wealth creation, he would be able to agree to invest in a company that does not pay dividends. If an investor is short-term oriented, then he or she will prefer a company that pays regular dividends. As for me, I am a young person who is mindful of his future, as a result of that I would like to build on financial decisions that will help me in the future and that will enable me to invest in companies that do not pay dividends (Furlan, 78). Question 13 The factor that should be considered is the willingness of the owners to change the ownership structure of the company.

The offering of common stock will definitely alter the ownership structure of the company. The other factor is the willingness and ability of the company to pay debts. The taking up of a bond will mean that the company will owe a financial institution some financial obligation. Question 14 An example of a listed company that has a short-term loan is North American Palla. The things that I would look for in the financial reports of the company are the source of financing for the company and the short-term liabilities.