Specify the most appropriate inventory system (Perpetual or Periodic inventory system) and inventory valuation method (FIFO, LIFO or Weighted average) with justification. (around 150 - 200 words)

That's all we have been given.

Harold International Holdings Ltd (Harold) is one of the well-established apparel retailers in Hong Kong. Their main businesses include the retail and distribution of men's, women's and children's basic and fashion apparel and accessories. It employs approximately 900 staff with around 45 shops. The prevailing pandemic has slowed down their sales significantly over the past year. You are a newly appointed manager at Harold. On the first day of your work on 1 Apr 2022, your director introduced you to the company background and provided you with the company's recent financial statements (see Appendix 1). He also mentioned about the low work motivation of some of the sales staff recently. The sales staff seem to be unhappy about the performance-related-pay system which has greatly impacted their income during this pandemic. He would like you to explore and come up with some recommendations as well. Based on the given information and the current global COVID-19 situation, you are asked to provide a report analyzing the recent economic fluctuations, company financial performance, and the current business environment and provide recommendations to the company. Where possible, you would need to make necessary assumptions. INCOME STATEMENT For the year ended December 31 In HK$ million 2021 2020 3,122 4,852 (1,386) (2,006) 1,736 2,846 Sales Cost of sales Gross profit Other income and other gains 183 83 Distribution expense Administrative expense (1,800) (224) (2,300) (232) Operating (loss)profit Finance expense Share of profit of joint ventures (Loss)profit before income taxes Income taxes (Loss)/profit after income taxes for the year (105) (41) 39 (107) (1) ( 397 (55) ) 63 405 (116) (108) 289 2 BALANCE SHEET As at 31 December In HKS million 2021 2020 1,256 1,259 ASSETS Current assets Cash and bank balances Financial asset at fair value through profit or loss Trade and other receivables Inventories Total current assets 200 404 359 434 548 2,094 2,366 219 128 549 538 Non-current assets Rental deposits Interest in joint ventures Investment properties Property, plant and equipment Right-of-use assets Goodwill Total non-current assets Total assets 23 226 822 541 2,289 4.383 23 225 1,279 546 2,830 5.196 52 LIABILITIES AND EQUITY Current liabilities Bank loans Trade and other payables Lease liabilities Income tax payables Total current liabilities 518 508 265 692 595 100 1,652 100 1,178 100 340 Non-current liabilities Bank loans Lease liabilities Deferred tax liabilities Total non-current liabilities Total liabilities 134 574 1.752 572 125 697 2.349 3 Capital and reserves Share capital Reserves Proposed dividends Total equity Total equity and liabilities 240 2,282 109 286 2,492 69 2.847 5.196 2.631 4.383 Harold International Holdings Ltd (Harold) is one of the well-established apparel retailers in Hong Kong. Their main businesses include the retail and distribution of men's, women's and children's basic and fashion apparel and accessories. It employs approximately 900 staff with around 45 shops. The prevailing pandemic has slowed down their sales significantly over the past year. You are a newly appointed manager at Harold. On the first day of your work on 1 Apr 2022, your director introduced you to the company background and provided you with the company's recent financial statements (see Appendix 1). He also mentioned about the low work motivation of some of the sales staff recently. The sales staff seem to be unhappy about the performance-related-pay system which has greatly impacted their income during this pandemic. He would like you to explore and come up with some recommendations as well. Based on the given information and the current global COVID-19 situation, you are asked to provide a report analyzing the recent economic fluctuations, company financial performance, and the current business environment and provide recommendations to the company. Where possible, you would need to make necessary assumptions. INCOME STATEMENT For the year ended December 31 In HK$ million 2021 2020 3,122 4,852 (1,386) (2,006) 1,736 2,846 Sales Cost of sales Gross profit Other income and other gains 183 83 Distribution expense Administrative expense (1,800) (224) (2,300) (232) Operating (loss)profit Finance expense Share of profit of joint ventures (Loss)profit before income taxes Income taxes (Loss)/profit after income taxes for the year (105) (41) 39 (107) (1) ( 397 (55) ) 63 405 (116) (108) 289 2 BALANCE SHEET As at 31 December In HKS million 2021 2020 1,256 1,259 ASSETS Current assets Cash and bank balances Financial asset at fair value through profit or loss Trade and other receivables Inventories Total current assets 200 404 359 434 548 2,094 2,366 219 128 549 538 Non-current assets Rental deposits Interest in joint ventures Investment properties Property, plant and equipment Right-of-use assets Goodwill Total non-current assets Total assets 23 226 822 541 2,289 4.383 23 225 1,279 546 2,830 5.196 52 LIABILITIES AND EQUITY Current liabilities Bank loans Trade and other payables Lease liabilities Income tax payables Total current liabilities 518 508 265 692 595 100 1,652 100 1,178 100 340 Non-current liabilities Bank loans Lease liabilities Deferred tax liabilities Total non-current liabilities Total liabilities 134 574 1.752 572 125 697 2.349 3 Capital and reserves Share capital Reserves Proposed dividends Total equity Total equity and liabilities 240 2,282 109 286 2,492 69 2.847 5.196 2.631 4.383