Tech Firms Stand to Gain from Huge Writes-Offs Essay

Published: 2020-02-24 12:21:15
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The problem is that a slight nuance of accounting gives firms such as Nortel Networks, JDS Uniphase or Micron Technology an exceeding artificial boost to their basic profit or possibly even to their stocks. The reason for the process of starting writing off values could be described as following. During the final stages of the industrys long boom, many firms appeared to be seriously hit by a components shortage which limited strongly their ability to expand.

So, many started the process of increasing parts inventories and then were caught with the slowdown hit. Others had secured supplies with long-term contracts, which seem to arise as very big burdens. Both Cisco Systems and JDS Uniphase, two firms which produce networking and Internet equipment, had to make huge write-downs in the value of their inventories. The firms were only to manage to sell the massive amounts of inventory they had written down. Concealing the cost value of the inventory seems to turn out a huge profit.

For goods that firms have completely written off, any sale means at least a 100% profit. The thing seems to appear a half problem in case companies are not supposed to dispose of the inventory. Yet, it is still strongly required that they report of writing off the book value because of the later sales to be too difficult to be traced. The huge write-offs are proof that the inventory management of the firms is needed to be got under control. The fact is that the process itself is to be kept under the severe control of the Securities.

Because of the difficulty of tracing future sales, the taxation of income seems complicated if not impossible. An average hundred dollar sale of inventory is possible to be found a million loss to the budget if the cost value of its is taken into account. The fact that JDS Uniphase reported to write off $250 million of its inventory, still promised to disclose any future sale of it seems to be quite a suitable way out. The next step could be up to legislators to develop an appropriate legislative proposal to get the situation under the tough control of the Securities.

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