Bausch and Lomb, Inc (a)

1065 Words5 Pages
1. What is the impact of the December 1993 shipments of conventional lenses to Bausch and Lomb 1993 financial statements? Is the impact significant? The impact was:- i) Increased revenue by $22M ii) Reduced inventory by 1.8 million pair. Based on the COGS of 45%, this could mean a reduction in inventory of close to $10M. iii) There is very little increase in SG&A as not much was spend in terms of sales effort. iv) AR increased significantly with some of the promissory notes are payable in June 1994 (6 months after sale) v) Probably increase marketing, promotional and expenses related to discounts in the subsequent year due to “Premier Vision” plan. This impact is significant. From the statements, B&L reported a 13% YoY increase in sales…show more content…
However, this strategy does pose considerable risk to the organization. The distributors appeared to have been “coerced” into taking the inventory with the promise that B&L will help them to sell on to the large customers. If that was true, under FASB criteria, it would have been a violation of revenue recognition as revenue can only be recognized if the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer or the amount of future returns can be reasonably estimated. Also, it appears that the distributors are not obliged to pay until they have sold the inventory with a 5months repayment scheme. This contradicts FASB revenue recognition guideline of where obligation to pay should not be contingent on resale of the product. Lastly, by increasing the credit terms beyond the capabilities of the distributors and also extending credit notes which are due 6 months after the sale, it does introduce high risk to the organization should they default on the
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