You are the junior management accountant working for Electronics Outlet (EO) which assembles hi-fi components. EO carries a significant amount of finished goods inventory and use the perpetual inventory system. The electronic assembly industry is very competitive and the company has reported losses for the past two years. The Chief Financial Officer (CFO) is anxious that this year the company may default on the terms of a major bank loan which requires the company to maintain a minimum current ratio relationship (current assets/current liabilities).

The yearend inventory of finished goods revealed that, due to problems with suppliers, the last two assembly runs has produced hi-fi products of lower technical specifications and can be sold only for a much smaller price that normal. You have estimated that the sale value per hi-fi is $60 less than cost of producing them and a significant write down in the value of closing stock is required.

The CFO is not prepared to make any adjustment to stock prior to the year end as the business needs the bank loan to continue operations in the short term. He is confident that business will improve in the coming year and by the end of that year a stock adjustment could be made without detrimentally appearing to affect the net profit result.

Required

Use the Stakeholder Analysis framework, described in Chapter One, to briefly analyse the above situation and determine the ethical issue and make a recommendation to your manager

What are the available options to maintain a minimum current ratio relationship and if the company can change the position from loss to profit? and if the company affect by what other companies do(products of lower technical specifications and can be sold only for a much smaller price that normal) ($60) less than cost?