Harnischfeger Corp
Harnischfeger Corp
1. All the accounting policy changes and accounting estimates that Harnischfeger made
during 1984 and the effect of these on the company’s 1984 reported profits.
- The Corporation includes in its net sales products purchased from Kobe Steel, Ltd. and sold
by the Corporation rather than only the gross margin on Kobe-originated equipment was included.
This change reflects more effectively the nature of the Corporation’s transactions with Kobe.
During fiscal year 1984 such sales aggregated $28.0 million.
- Change of fiscal year from July 31 to October 31 for certain foreign subsidiaries. This
change had the effect of increasing net sales by $5.4 million for the year ended October 31, 1984.
- The Corporation computed depreciation expense on plants, machinery and equipment using
the straight-line method instead of principally accelerated methods for U.S. operating plants. The
effect of this change increased net income for 1984 by $11.0 million.
- The Corporation changed its estimated depreciation lives on certain U.S. plants, machinery
and equipment and residual values on certain machinery and equipment, which increased net
income for 1984 by $3.2 million.
- Inventory reductions resulted in a liquidation of LIFO inventory quantities carried at lower
costs compared with the current cost of their acquisitions. The effect of these liquidations was to
increase net income by 2.4 million.
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and switch inventories method of accounting to maximise their expected compensation. However
one of cost cutting measures was to eliminate management bonuses.
- William Goessel, the new chief operation officer, appointed in August 1982. Jeffrey Grade, the
new senior vice president of finance and administration and chief financial officer, appointed in
1983. When the top management is changed, there is a motivation to make provisions that ensure
that any losses appear as the responsibility of the previous manager. Therefore, the new
management team was expected to choose accounting policies and estimates to increase provisions
for loan losses in the year of change in manager and increase the profits in the next year.
It is too complicated for a general investor to see through the impact of all the accounting changes. But
there are opportunities for superior analysts to fathom these changes through analyze the financial
statement. However changes in estimates are more difficult to understand than accounting changes and
often require additional information.