The Impacts of New ROC GAAP No. 10 on Firm’s Financial Performance and Inventory Management

• Main Authors: Kuan-Wen Lu, 呂觀文
• Other Authors: Tsun-Siou Li
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/00313496673008755369

碩士 === 國立臺灣大學 === 財務金融組 === 97 === Inventory costs account for a substantial part of the assets of business companies, especially in the manufacturing industries. The way inventory costs are evaluated thus plays a crucial role in determining the accounting profitability of a company. The new GAAP No. 10 of Taiwan introduces several new approaches in evaluating inventories. It regards idle capacity as an expense. Inventories are priced at their net realizable value instead of the lower of cost or market. When evaluating the necessary reserve for possible loss in inventory value, item-by-item approach replaces the traditional aggregation approach. The estimated loss in inventory value has to be recognized as part of the cost of goods sold, resulting in lower gross profit margin. All these changes may bring about great impacts on the manufacturing industries, especially those with thin profit margin. Back light units (BLU) firms, which represent the middle stream of LCD industry are selected for detailed analysis. The reasons are that they have no control over their capacity utilization rate. Furthermore, when key materials and parts supplies are grasped in the hands of big U.S. and Japanese firms, BLU firms have little bargaining power whatever on their product prices. Timely production and stringent inventory management turn out to be the most important factors for their survival in a low-profit-margin environment. Taiwanese BLU firms usually follow a strategy that separates the functions of planning, manufacturing, marketing and financing among Taiwan, China and Hong Kong. This in turn makes inventory pricing and management a costly task, under the new accounting rules. The financial statements of Y Company are analyzed to figure out its normal capacity, the amortization of manufacturing expenses and the cost of goods sold to arrive at the ending inventory value under both old and new accounting regimes. Net income, either before or after tax, is computed under the new ROC GAAP No. 10 and compared with what it would have been under the previous rules. Managerial implications are then derived with respect to the adjustment of capital expenditure decisions and strategies based on the research findings. It is hoped that the manufacturing industry may benefit from minimizing the financial impacts of the new accounting rules through this research.