The Collapse Of Dick Smith
Task: Provide a detailed account of dick smith collapse.
Analyzing and contemplating the failed case of industry holds great significance for a company since it provides a better idea of major elements in the life cycle of a company. The study of failed cases would strengthen the authoritative bodies and management team of the company to devise strategies that would eventually revitalize the existing business. The in-depth study of the Business performances and its failure would help the officials in providing crystal clear clarity on the reasons why the business in a certain field tends to fail and elements that have the potential to disrupt the business processes (Osuala 2015, p. 12). The company by Dick Smith held the position of an iconic retailer in the domestic electronic market of Australia. The major reason behind the failure of the company consisted of both internal and external elements of the organization. This report on dick smith collapse throws light on crucial issues prevailing in the accounting systems which escorted the company towards the course of the collapse of the organization by considering various theories in accounting and other business customs.
Actions are taken by the management and various issues in accounting which led to the dick smith collapse
The Dick Smith company had enjoyed very tremendous growth by adopting very innovative developmental strategies in their business processes. This course of development by the company continued till it was registered in the list of Australian stock exchange in the later 2013. The company had tried its best in increasing its revenue during its difficult phase. The company had invested all of its efforts in somehow providing the company a sustainable growth to receive a balanced performance from the business.
The major reason behind the failure of the company included the failure of the inventory purchase in bulk because of the poor planning and inconsiderate expenditure commenced on the developmental strategies. The inconsiderate and heavy expenditure of the company on the developmental plans combined with the low profit had compelled the company to enter into huge loans and mortgages. The need for huge borrowing deals occurred because the company had to spend all of its surplus on the aforesaid development strategies. The increased level of loans and debts had reduced the reliable image of the company among the customers and eventually lost the hold on the operative market because of the change in preferences of loyal customers. Although the company had been in a very distressed condition, the management of the company had not made any alteration in the development plans and it remained unchanged and unchecked for a while. This attitude has created a situation of accumulation in raw materials and other stocks which went obsolete and lost all of its resale value.
The company had to organize a rapid sale clearance for the accumulated goods after some months although there was a strong expectation of profit as it was of a huge sale season and there was a strong chance that the retailers could have attained a substantial profit. The revenue generated before it was not adequate to meet the expenditure for new advancements. These advancements had consequentially brought the dick smith collapse since the funds were not sufficient for the present and future advancements of the company. The immense damage to the company had happened because of many negative elements like below-par sales, downgrade in the records of inventory, worse stipulations in margin lease, and some other mishandling of its capital and assets that are provided below:
- The source of income or revenue for the company was limited to the commercial scales and development of the outlets which is restricted to a very subdued level. These developments had led to a decrease in the value of market share since the overall sales of the company is decreasing.
- Many strategies developed by the management of the company for the development of the retail department demanded for a higher level of commitment and dedication from the suppliers, department of finance and the efficient use of the borrowed sum of money.
- If compared to other rivals in the domestic market of Australia, the Dick Smith company had a wider network of outlets which made the company rely on the higher cost base and the highly dynamic and relocating outlets and modernized and computerized market.
- A great setback on the presentation of the store, share value of the organization, influence over the product mix, and goodwill had occurred because of the prevailing incompetence of the retailers in the electronics department in attaining its target in favorable credit terms.
- Various poor judgments were made by the managerial team which held no correlation with the demands of the consumers in the domestic electronic market of Australia. Because of these incompetent decisions, the retailers in the electronic department were abandoned with a large amount of useless and outdated supply which should be disposed of on an urgent basis.
- The company was forced to commence breach of contract and loan stipulations provided by the bank, because of heavy cash flow pressures which led to an irrecoverable condition.
- The last option of the company was to execute a clearance sale to gain a sudden amount of income and get rid of the obsolete goods in the store. But the clearance sale had turned out to be a disaster since it had covered a very insignificant margin. These advancements were not enough to alleviate the financial pressure of the company.
- The domestic electronic consumer market in Australia is very dynamic and consists of very strong and vicious competitors. The buying trends and customer behavior in this market change abruptly in a very short period. If a company wants to survive in this sort of hostile environment, it needs to devise out very innovative and effective strategies for the marketing and sales of its products to attain its previously set targets.
Stakeholders of the business
Various private equity firms like Phillip Cave, Anchorage Capital Partners’ Bill Wavish denote some of the major stockholders of the Dick Smith Company. The major liability of the Dick Smith collapse was laid on the activities committed by these two stakeholders. If discussed in detail, the activities of Phillip Cave were supporting the allegation of being the major beneficiary of the fraudulent activity happened in private equity. This allegation was sternly opposed by the stakeholders like Anchorage Capital Partners. As per the observations made by Yamey (2011, p.89), it is the customers who ascertain the future of any company, hence they should be considered as one of the most significant stakeholders. The dick smith collapse had also made a negative impact on the customers since the dick smith brand was considered to be a very reliable brand and its demise was an unexpected one.
Various theories of accounting implemented by the management team of Dick Smith Company
As per the concept of a positive accounting theory, an organization is considered to be an aggregate sum of business contracts. The stipulations in the accounting theory provide that the majority of the retail businesses majorly comprises of bonds and agreements which controls and holds the major idea and objective of a certain organization. Along with it should also be noted that the major factor which would affect the success and output of the business is the productivity and competence of each department of the organization. The concept of the theory in positive accounting are majorly reliant on and exploring the practical knowledge of various incidents while conducting the business processes which would make it quite easy to apprehend and foresee various fluctuations and dynamics in the operative market along with understanding how other companies cope up with various obstructions and challenges in implementing accounting methods. The methodology has the potential to check into various issues in the practicality of many processes since the positive accounting theory supervises and analyses how the organization is implementing various principles along with foreseeing the economic consequences.
Although, the theory of normative accounting implies a conflicting method and approach which providing the notion to the policymakers on the elements required while taking into account the theoretical knowledge rather referring to the practical knowledge. Hence the process of normative accounting would be based on logical and empirical methods rather than the practical approach of the positive accounting method. If considered both the normative and positive accounting theories the norm of security was not maintained by the stakeholders of Dick Smith. The stakeholders had intentionally hidden the substantial variations and requirements of decision-making that were very crucial for the future success of the company and hence ignored the need for financial security. Because of these reasons, the regular activities and processes of the organization were not represented accurately in the financial statements and thus followed wrong customs in the accounting process. This made it very hard for the management team of the company to understand the financial position of the company. As per the customs followed in the normative theory, it was evident that the management system of the company had a major role in the Dick Smith collapse. It becomes very hard to classify and recognize whether the revenue and the expenditure occurred in an agreement that could be categorized and identified as future aggregate chronological with the period (Liveris 2011, p. 19).
Although these two theories have possessed this much of differences, there are also some similarities like they function on the assumption of the monetary unit, periodicity assumptions, going concern assumption and the economic entity assumption. If considered the theory of positive accounting, there should be isolation between the activities of the owner of an organization and the business processes carried out in his organization so that it could be ensured that the organization should keep on functioning without any risk of liquidation or insolvency. This assumption is majorly implemented when the periodical preparation of financial statements are prepared. As per the stipulations provided in GAAP, if an organization performs very badly in the market then the financial statement of the organization must reflect the root of liquidation with relevance to its operational assets (Wamrack 2014, p. 15). A comparison of various theories
The method provided in the positive theory requires the prevalence of the financial statements in terms of numerical currency reliant on the business processes about the product units. The processes in business are being segregated into fiscal periods with coherence to the cyclic reports or budgets presented on a monthly or yearly basis using the assumption of periodicity (Rudolf 2011, p. 19). Any sort of management theory adopted by the organization should display a strong correlation with the corresponding principle and chronological expenses commenced by the firm. If taken an instance, the management of the Dick Smith organization could have made some measures to arrange the revenue and expenses in accordance with the time of occurrence. This action could have helped in analyzing the forthcoming functioning of the organization.
The principles of the normative accounting theory which are also termed as the prescriptive theory majorly comprise of the guidelines on the methodologies of accounting and the ways to implement most effectively. As per the opinion of Husband (2010, p. 554), the principle of normative accounting is well designed to reveal the actual revenue from the assets in accounting and range of profits in the business which would help the company in arriving at major conclusions. These conclusions would play a great role in drafting a better strategy in preparing the decisions. In the context of high expenditure in the expansion and less surplus, the principle of normative theory becomes very significant for arriving at an efficient decision-making methodology. If the company management had implemented the normative accounting in their processes, then they may have avoided the Dick Smith collapse.
To scrutinize various customs followed by various organizations in accounting the accounting principles were devised out. The accounting principles are made by referring to many valid sources and stipulation which makes it very scientific and logical. These theories would come very handy for higher authorities in taking very good decisions in a very dynamic business environment. In other aspects, various activities in the field of accounting are documented and examined using these theories. These activities consist majorly of the profit and loss occurred in the trade thus helps in assessing the progress and position of the company in the operative market. Hence it could be observed that accounting principles play a vital role in locating the position of the company in the market. This report on dick smith collapse concludes that the practices in accounting and accounting theories are co-dependent and plays a vital role in any organization. If the employees of the company had taken the accounting principles seriously then the dick smith company could have avoided its demise. Dick smith collapse assignments are being prepared by our accounting assignment help experts from top universities which let us to provide you a reliable academic assignment help online service.
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