Exess Steel plc specialises in steelmaking and is located in the northwest of the country. Due to an unexpected downturn in demand for its steel products it has excess coking coal. South East Steel Products plc has also been caught by the unexpected economic downturn and has an excess of steel pellets. At the steel producers annual conference the two managing directors discuss how their different auditors want them to write down the value of the excess stock because of the economic circumstances. They agree to do an exchange of the two commodities with the contracts including selling prices at the cost values in their books and a small cash payment to cover the difference between the two valuations. The two items are recorded in the books at the agreed purchase and selling prices respectively.
Required:
Comment critically on this proposal.