Compulsory (Wajib) For Intermediate Accounting Students Class – Management A
John Jerkins is the Chief Executive Officer of a chain of retail stores which is trade as Bains Ltd in Australia and New Zealand. The company has been very successful in its 50 years of operations – until the past three years. The entry of new competition from overseas plus a downturn in the economy, has made trading very difficult.
In reviewing the year’s performance to date, john is concerned that the company’s profit is down again from last year. The predicted result, if the current trends continue, will bring added pressure on the company from its bankers and the financial press.
To alleviate the problem John develops the following plan:
- He will instruct all stores to reduce the level of income required for customers to qualify for credit. This, he reasons, will allow more families to purchase appliances such as a television sets and video recorders.
- He proposes to amend the method of providing for doubtful debt according to the following schedule:
As an intermediate accounting student you have been asking to:
- Determine the amount of increase in profit as a result of the revised schedule for determining doubtful debts expense.
- Discuss the effect of the revised credit policy on the company profitability.
- Discuss the ethical issues associated with John’ plan.
Post your answers in this page in “Leave a comment” menu at the latest of Friday 10th June 2011. You can answer in English or Bahasa Indonesia, however answering in English will generate an additional value.
This case study is taken from:
Bazley, M., Hancock , P., Berry, A., and Jarvis, R. 2004. Contemporary Accounting. 5th Edition. Thomson Learning. Australia. Chapter 8, p.191.