Due To A Negative News Article That Alleged The Food Product

Due To A Negative News Article That Alleged The Food Products Of A Sub

Due to a negative news article that alleged the food products of a subsidiary of a client were tainted, sales of the company’s products plummeted last year. Accordingly, your firm proposed a journal entry for a goodwill impairment based on the severe decline in sales and profits. The client originally agreed to the write down, but new articles have just come out alleging the original news reports to be false. Sales are slowly picking up again for the subsidiary. Since the audit opinion has not been issued yet, the CFO now wants to reconsider the write down for goodwill impairment since it appears that sales will be back to previous levels within a couple of months, based on current orders in the pipeline.

How would you respond to the CFO’s request? Required: Half to one page only with at least 2 references. In this module, we are studying capital budgeting as a tool to determine whether or not a long-term asset should be purchased. The process we follow could be used in other applications, such as the following: 1. Mergers and acquisitions of companies 2. Decisions to expand or downsize a business 3. Decision to change jobs 4. Decision to take online courses 5. Pricing a product In this week’s discussion board, explain specifically how the capital budgeting tool could be modified to be used in one of these applications—or in a completely different application you identify. Feel free to use an example you have experienced in your career. Required: Half to one page only with at least 2 references.

Paper For Above instruction

The CFO’s request to reverse or modify the previously recognized goodwill impairment due to recent favorable news and the expected quick recovery in sales warrants careful consideration of accounting standards and the principle of prudence. Generally accepted accounting principles (GAAP) stipulate that impairments of goodwill should be recognized when impairment indicators are present, and reversing impairments is generally prohibited unless specific subsequent events warrant such adjustments (FASB, 2017). In this scenario, although recent articles have refuted the initial negative reports, the delay in issuing the audit opinion signifies ongoing uncertainty. Therefore, based on the current guidance, it would not be appropriate to reverse the goodwill impairment without concrete evidence that the impairment no longer exists. Moreover, the initial impairment was based on a material and sustained decline in sales and profits, which was objectively observed. Brief improvements in sales, especially if due to temporary factors, do not necessarily negate the impairment, particularly when the overarching uncertainty persists. Consequently, my recommendation would be to maintain the impairment recording until audit approval clarifies the situation. This approach aligns with the prudence concept, which emphasizes cautious financial reporting, and ensures compliance with accounting standards to prevent premature reversals that could mislead stakeholders (Laux & Leuz, 2009). Ultimately, the decision should be supported by audit findings and comprehensive evidence rather than solely on recent news developments or assumptions of rapid recovery, as accounting integrity and transparency are paramount.

Using Capital Budgeting in Different Business Applications

Capital budgeting is a fundamental financial tool used to evaluate long-term investment decisions, primarily by assessing the potential returns and risks associated with large expenditures. Although traditionally applied to investment in physical assets, the core principles of capital budgeting can be adapted to other significant business decisions, such as mergers and acquisitions, expansion strategies, or even personal career moves. For example, in the context of a merger, firms can utilize discounted cash flow (DCF) analysis—an essential component of capital budgeting—to evaluate the future cash flows expected from combining operations and determine whether the merger will generate value exceeding its costs (Brealey, Myers, & Allen, 2019). By estimating synergies, cost savings, and revenue enhancements, companies can quantitatively assess potential benefits and make informed decisions. Similarly, in a career context, an individual could adapt capital budgeting methods to evaluate a job change by comparing the present value of expected increased earnings and benefits against the costs of transition, such as retraining or relocation expenses (Damodaran, 2012). This approach ensures that decisions are grounded in quantitative analysis, promoting strategic investment and minimizing risks. Overall, the flexibility of capital budgeting principles allows them to be tailored for diverse applications beyond asset purchases, emphasizing thorough evaluation of long-term value and opportunity costs.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance. McGraw-Hill Education.
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley Finance.
• FASB. (2017). Accounting Standards Codification Topic 350 — Intangibles—Goodwill and Other. Financial Accounting Standards Board.
• Laux, C., & Leuz, C. (2009). The Crisis of Fair-Value Accounting: Making Sense of the Recent Debate. Accounting, Organizations and Society, 34(6–7), 826-834.