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Assignment On Capstone Research Project Essay

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Assignment 3: Capstone Research Project Write-Down Inventory The concept of write-down inventory states that the value of inventory should appear in financial statements only if it has some value, which is equal to the difference between the current market replacement value and the original inventory cost. IAS 2 stipulates that loss on write down inventory if small should be reported as part of the cost of goods sold and if huge, it should be reported on a separate line on the income statement. It thus follows that exclusion of write-down inventory may lead to investor overestimation of earnings persistence thereby leading to ethical and financial implications. The ethical issues include loss of brand value and goodwill, concealment of fraud penalties, and loss of shareholder and investor confidence while financial implications may include excessive compensation of the management. It would be advisable for both the CFO and CEO of the company to consider negative assessment by the IRS since the company used write down inventory to reduce its taxable income. The amount is inaccurate and is evidently used for tax purposes and was not included in the income statement as stipulated. The IRS thus would be compelled to contact the fraud technical advisor and the front line manager to ascertain the length of such an activity and thereby claim the tax payable in addition to fraud charges. The CFO and CEO should identify any changes in operations that may have led to slow-moving or

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