Electronics Components and Electronic Project Kits

Dick Smith was an Australian retail chain that was engaged in selling of electronics consumer goods, electronics components and electronic project kits. The company was started in the year 1968 and passed through several hands and was liquidated in the year 2016. The company by the year 2016 employs more than 3300 employees with a sale of more than $1.3 billion.

The major accounting issues that are being faced by the management of Dick Smith are as follows:

• The management of the company made plan for expansions which ate up all the surplus earnings that has been made in by the company over the past several years. This forced the company to borrow money from the market which added up interest cost to its other operational cost.
• The management of the company got most of the cash stuck in inventory. There was no planning which has led to overstocking and there was no sale which has let to overvaluation of the inventory and ultimately let to losses.
• There was no planning that has been done from the perspective of the management in relation to the expansion plans. These plans were unchecked and they have done without considering the due diligence for the expansion plan.
• The assets of the company were impaired, there were no provision that has been made in the books for the future losses and further there has been decrease in the sales which even fell down from expected.

All these factors jointed impacted the financial health of the company and at last let to the liquidation of the company.

The stakeholders refer to the persons who are impacted by the actions, goals and objectives of the company. All the decision that are being taken by the company in some or the other way impact the stakeholder of the company.

As result of the collapse of Dick Smith retail chain there are many stakeholders who are being impacted.

• Creditors refer to the person to who the company ought to pay for their services and goods. The company has defaulted in making payment of $260 million to the creditors.
• The company has 3300 employees who are working for the company. As result of the collapse these people lost their job and became jobless.
• The shares of the company are listed on the Australian Stock exchange, s result of the news of the collapse, the shares value went dramatically downside, resulting in huge losses to the equity shareholders of the company.
• The banks and other lenders who have given significant amount to the company as loans, suffered losses as at times of liquidation they got something less than what they exactly deserved.

The management of Dick Smith Limited was very anxious with the success that they have obtained in the past. They were making hugh sales followed up by hugh profits. The company went through many hands and still was able to survive with glowing colors in the market. The management believed that they would survive in all circumstances with minimal errors. They went into listing on Australian stock exchange and there stocks were preferred by all. They as result of their anxious nature went into expansions without understanding the amount of funds that would be required in meeting down the need of that expansion. This has let to problems for the management of the company to manage the different aspects of funding and the company exhausted all its earnings and has to raise their hands form external parties for loan that came with an additional cost. The company later on was unable to maintain the same and went into liquidation.

There were several issues that contributed to the collapse of the company. One of them is the poor inventory management. The company has made excessive investment in the inventory which has reduced the working capital of the company. The inventory later on become over valued in the books this was reduced to their actual cost putting excessive pressure on the income statement. Further, the management of the company hasn’t made any provision in the books for the future losses. As a result of which the actual financial position of the company was not reflected in the books making it difficult for the stakeholders to understand the actual picture of the company. As a result of which later on when the same has been disclosed, the stakeholders and shareholders of the company lost their trust in the company making it bit more difficult for the management to maintain the same.

In case of Dick Smith Limited, the Game theory played a vital role. Game theory referred to the theory that has been used at times of decisions making in situations of conflicts and corporation. In case of Dick Smith, the Anchorage Capital acquired Dick Smith from Woolworth for $10 million approx. It has been stated that they paid $115 million to acquire the company but sources based on the evidence available revealed that they paid net $10 million for the acquisition and in 2 years they further sold the company for $520 million. Through this theory it has been revealed that they might have sold the company way before than 2 years if they would have intended that the company would have went into liquidation soon.

The Inductive accounting theory is some or the other way related to Dick Smith. This theory analyses the happening of past events and states these events if occurred in future will have similar results. In case of Dick Smith, the company kept on accumulating the inventory without accessing the past results where the inventory they have purchased in the past are accumulating.

There are different accounting theories. Some of them are as follows:

Descriptive theory: This theory explains the affects of the events on our life. The use of this theory in accounting explains how the events will be treated in accounting. This can do by proper explanation about happening of the event.

Normative Accounting Theory: This theory deals with understanding the future acts based on the current day phenomena. This will help in understanding the future problems and finding adequate solutions for the same.

Evaluative accounting Theory: This theory helps in understanding the quality and quantity of the event that has been taken place. Based on the same, the decision related to the accounting is taken.

Communicative accounting Theory: These theories help us in giving an adequate forecast for the coming future. So based on these theories we can make adequate guess about the upcoming future and based on the same the decision can be taken place.

Inductive accounting Theory: This theory analyses the happening of past events and states these events if occurred in future will have similar results.

Deductive accounting Theory: The deductive theory helps in farming the future behavior at times of happening of special phenomenon. These theories are formulated with an intention to achieve some specific goals.

Generally accepted theories: These theories are accepted by all and are adoptable in all the available circumstances.

Among the above theories the Inductive accounting Theory looks applicable to Dick Smith. This theory analyses the happening of past events and states these events if occurred in future will have similar results. In case of Dick Smith, the company kept on accumulating the inventory without accessing the past results where the inventory they have purchased in the past are accumulating. Based on their past behaviors they have decided to enter into the expansion project with an intention that similar to prior period they would get enormous success in the new projects without giving it a feasibility test and determining the pros and cons of the same. There unrealistic behavior has put the management of the company in a problematic state and thus the company went into hugh losses.

References

Parker, L, Guthrie, J & Linacre, S 2011, ‘The relationship between academic accounting research and professional practice’, Accounting, Auditing & Accountability Journal, vol. 24, no. 1, pp. 5-14.

News.AU, 2016, McGrathNicol releases Dick Smith report, Viewed on 4^th Sept 2016, http://www.news.com.au/finance/business/retail/mcgrathnicol-releases-dick-smith-report/news-story/c2897a8cf8023b3f7490b7f16c2781c2

Weebly, Accounting theory, Viewed on 4^th Sept 2016, http://accountingtheory.weebly.com/accounting-and-its-objectives.html

The Conversation, 2016, The ugly story of Dick Smith, from float to failure, Viewed on 4^th Sept 2016, http://theconversation.com/the-ugly-story-of-dick-smith-from-float-to-failure-55625

Low C, 2016,  Dick Smith receiver Ferrier Hodgson refers issues to ASIC, Viewed on 4^th Sept 2016, http://www.smh.com.au/business/retail/dick-smith-receiver-ferrier-hodgson-refers-issues-to-asic-20160401-gnvvaf.html

Keall C, 2016, Five serious questions about Dick Smith collapse, Viewed on 4^th Sept 2016, http://www.nbr.co.nz/opinion/five-serious-questions-about-dick-smith-collapse

Janda M, 2016, Dick Smith enters receivership due to bad sales, banking woes, Viewed on 4^th Sept 2016, http://www.abc.net.au/news/2016-01-05/dick-smith-enters-voluntary-administration/7067798.

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