Question

create a response to the following discussion post:

by reclassifying period cost to product cost, we temporary shift the costs from the income statement to balance sheet as a unit property and could be there until the unit's sold. thus, Product costs are initially recorded within the inventory asset. Once the related goods are sold, these capitalized costs are charged to expense and Gallant move these cost to the next year to reach the sell goals for the current fiscal year.
I believe that his action depends on the situation, would be ethical or not. Sometimes, we try very hard to work out on our plans, but many factors impact on our promises and we couldn’t make what we were looking for. In these cases, his action is ethical, he just wants to get more time to work on marketing plans and figures what to do! However, if he does this just because of meeting his promises to stakeholders, then it's not ethical and he even makes it worse. Postponing expenditures is not a permanent solution, it's just temporary solution to get more time if he hasn’t tried a different strategy to increase sells in the current year, he wouldn’t be able to meet the promise next year. In the other hand, by doing this, he just wants to lie stakeholders to keep the stocks up.

Answer 1

This is the case with a lot of companies out there in order to reduce the expenses cost of the product.

It would be fair enough to make it as an asset until and unless the company knows it can sell the product within the suitable time and without hurting the product margins at the same time. If the costs are unrecoverable such as R&D expenses to the product, it will be highly wrong to convert into assets.

To identify this activity, we can use different parameters, such as inventory turnover ratios, checking the receivables of the company, stability of the inventory and the assets of the company.